Nepal - Income Tax Act, 2058 Eng_20130107021810.doc

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Income Tax Act, 2058 (2002)

Date of Authentication and the Publication

2058-12-29-2 (18 April, 2002)

An Act Made to Amend and Consolidate the Law relating

to Income Tax

Preamble: Whereas, it is expedient to make timely the law relating to income

tax by amending and consolidating it in order to enhance revenue mobilization

by making the process of collecting revenue effective for the economic

development of the country;

Now, therefore, be it enacted by Parliament in the first year of reign of

His Majesty the King Gyanendra Bir Bikram Shah Dev.

Chapter-1

Preliminary

1. Short title and commencement : (1) This Act may be called as the

Income tax Act, 2058 (2002).

(2) This Act shall come into force throughout Nepal and also

apply to the resident person in any place outside the Nepal.

(3) This Act shall come into force immediately.

2. Definitions : Unless the subject or the context otherwise requires in this

Act,-

(a) "Person withholding advance tax" means a person with a duty to

withhold advance tax pursuant to Chapter-17 in making payments

Each year Amended version of the Financial Act is put at the end.www.lawcommission.gov.np1


for employment, investment return, service charge and contract

or contraction, as well.

(b) "Officer" means the Director General, Deputy Director General,

Chief Tax Administrator, Director, Chief Tax Officer, Tax

Officer and other Officers in the Department, as referred to in

Section 72.

(c) "Payment from which tax is withheld finally" means any

dividend, rent, profit, interest and payment from which tax has to

be withheld made to the non-resident person, as referred to in

Section 92.

(d) "Retirement fund" means an entity established with a sole

objective to accept retirement contribution funds for the purpose

of making retirement payments from the fund to the entity's

beneficiary natural persons or their dependents, and invest such

funds.

(e) "Retirement payment" means any payment made to the following

person:

(1) Payment made to a natural person where such person has

got retirement, or

(2) Payment to the dependent of a natural person where such

person has died.

(f) "Retirement contribution fund" means any payment made to a

retirement fund for provisions of retirement payment or for future

provisions thereof.

(g) "Incapacitated person" means a person who is not capable of

making his dealings because of physical or mental illness.

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(h) "Income" means the income earned by any person from

employment, profession or investment and the total amount of

that income calculated under this Act.

(i) "Income year" means a period from the first day of Shrawan

(tentatively 15 July) of any year to the last day of Ashad

(tentatively 14 July) of the next year.

(j) "Gift" means any payment made without any consideration or in

the case of any payment with consideration, where the market

value of payment exceeds the market value of consideration,

payment to the extent of such excess.

(k) "Debt liability" means the liability equivalent to the debt claim.

(l) "Debt claim" means the right of any person to receive payment

from another person, and this term also includes the right of any

person to have repaid a loan lent by such person to another

person, the right to receive deposits made in a bank and financial

institution, to receive sums to which such person is entitled and

to receive moneys from the sale of debentures, bills of exchange,

bonds, rights under annuities, financial lease and installments.

(m) "Company" means any company incorporated under the

companies' law in force, and for the purpose of tax the following

institutions shall also be treated as if they were companies:

(1) Any corporate body established under the law in force,

(2) Any unincorporated union, board, association or society or

sole proprietorship whether incorporated or not and any

group of persons or trust except a partnership,

(3) Any partnership firm consisting of Twenty or more

partners whether registered or not under the law in force,



any retirement fund, cooperative institution, unit trust,

joint venture,

(4) Any foreign company;

(5) Any other foreign institution as specified by the Director

General.

(n) "Tax" means the tax chargeable under this Act, and this term also

includes the following payments:

(1) The expenditures referred to in clause (a) of Sub-section

(8) of Section 104 as incurred by the department for any

claim in respect of, and auction sale of, the property in

which the tax is due and outstanding,

(2) The amount payable by the person withholding advance

tax or the person subject to tax withholding under Section

90 or the amount payable by the person making payment

in installment under section 94 or the amount payable after

the assessment of tax under Sections 99, 100 and 101,

(3) The amount payable to the Department in respect of tax

liability of the third party under Sub-section (2) of Section

107, Sub-section (3) or (4) of Section 108, Sub-section (1)

of Section 109, Sub-section (1) of Section 110,

(4) The amount as referred to in Chapter -22 payable for a fee

and interest, and

(5) The amount of fine referred to in section 129 required to

be paid as per the order of the department.

(o) "Person subject to tax withholding" means any person who

receives payment or has the right to receive payment by

withholding tax under Chapter-17 in making payment for www.lawcommission.gov.np4


employment, investment return, service fee or contract or

contraction.

(p) "Tax assessment" means the assessment of tax to be made under

this Act and this term includes the assessment of a fee and

interest under Section 122.

Provided that, this term does not mean the previous tax

assessment substituted by the amended tax assessment under

section 101.

(q) "Non-resident person" means any person save the resident

person.

(r) "Non-occupational taxable assets" means any land, building and

interest or security in any entity except the following properties:

(1) Occupational assets, depreciable assets or stocks-in-trade,

(2) A private building owned by a natural person in the

following situation,-

(a) Being under ownership for a continuous period of

three years or more, and

(b) Where that person has resided for a total period of

Three years or more continuously or at several

times.

(3) A private building belonging to and disposed of by any

natural person for a value less than ten million rupees, or

(4) An asset disposed of by way of transfer in any manner

other than the purchase and sale within three generations.

(s) "Organization entitled to enjoy exemption" means the following

entity:www.lawcommission.gov.np5


(1) A social, religious, educational or benevolent

organization of public nature established with non-profit

motive,

(2) An amateur sports organization so formed with a view to

promoting social or sports related facilities that the

organization or its members does not derive profits,

(3) A political party registered in the Election Commission,

(4) Village Development Committee, Municipality or District

Development Committee,

(5) Nepal Rastra Bank,

(6) Government of Nepal,

(7) An entity as prescribed and entitled to use tax exemption

by an advance ruling issued under Section 76,

Provided that, in cases where any person has

derived any benefit from the property of that organization

and the monies obtained from that organization except in

making payment for the property or the service provided

by any person to that organization or in discharging

functions in consonance with the objective of the

organization entitled to exemption, tax exemption shall not

be granted.

(t) "Trust" means an arrangement whereby a trustee holds any

property.

Provided that, this term does not include a partnership,

corporate body or organization referred to in sub-clause (3) of

clause (m).



(u) "Trustee" means a natural person, trust (Guthi) or other body

corporate who, individually or jointly with other natural person,

trust (Guthi) or corporate body, holds a property in trust, and this

term includes the following person:

(1) The operator or administrator of the assets of a deceased,

(2) A liquidator, recipient or trustee,

(3) Any person who protects, directs, controls or manages the

assets of an incapacitated person in individual or official

capacity,

(4) Any person who manages the assets under a private

enterprise or similar other enterprise, and

(5) Any other person in a position similar to that of the person

as referred to in clauses (1), (2), (3) and (4).

(v) "Long-term contract" means a contract referred to in Section 26

of which validity period is more than twelve months.

(w) "Relative" means a natural person's husband, wife, son, daughter

(adopted son, daughter as well), father, mother, grand-father,

grand-mother, elder brother, younger brother, sister-in-law,

daughter-in-law, elder sister, younger sister, father-in-law,

mother-in-law, brother-in-law, elder brother-in-law, wife's sister,

uncle, aunt, nephew, niece, grand-son and grand-daughter.

(x) "Entity" means the following organization or body:

(1) A partnership, trust or company,

(2) Village Development Committee, Municipality or District


(3) Government of Nepal, www.lawcommission.gov.np7


(4) Any foreign government or provincial or local government

under that government or a public international organization

established by any treaty, or

(5) A permanent establishment of the organization or body

referred to in clauses (1), (2) and (3), which is not situated

in a country of which it is a resident.

(y) "Interest in entity" means and includes the contingent right to

receive income or capital of any entity.

(z) "Disposal" means a disposal inclusive of the sale or transfer of any

property or liability as mentioned in Section 40.

(aa) "Vested ownership" means the following ownership:

(1) In the case of any entity, ownership created on the basis of

the interest which any natural person or any entity in

which a natural person has no interest has in that entity

directly or indirectly through one or more interposed

entities, or

(2) In the case of the assets owned by any entity, ownership of

the assets as determined in proportion to the ownership of

the persons who have vested ownership in that entity.

(ab) "Lease" means the provisional right of any person to enjoy or use

any property except movable property belonging to another

person, and this term also includes a license, rent agreement,

trenches, royalty agreement or right of a lessee/ tenant.

(ac) "Natural person" means an individual, and, for the purposes of

this Act this term includes a sole proprietorship owned by an

individual, whether registered or not, and a spouse so selected

under Section 50 as to be considered as the single individual.



(ad) "Payment for natural resources" means an amount of any of the

following payments:

(1) Amounts received for having extracted water, minerals or

other living and non-living resources from the earth, or

(2) Amounts calculated in full or in part on the basis of the

quantity or value of living or non-living resources of the

natural resources and minerals extracted from the earth.

(ae) "Market value" means ordinary transaction value of any property

or service in the ordinary course of trade between unrelated

persons in respect of such property or service.

(af) "Rent" means a premium received for the house rent as well as

for the lease of a tangible property and payment for the provision

of that lease. Provided that, this term does not include any

payment made for natural resources.

(ag) "Payment" means the following activities:

(1) If the money or property owned by any one person is

transferred to another person and the liability of any other

person is transferred to that person,

(2) If the ownership over any property created by any person

devolves on another person after the creation of that

property or if any person bears the onus of liability of

another person,

(3) If any person delivers service to another person,

(4) If any person uses any property owned by another person

or such property is available for such use.



(ah) "Distribution of profit" means the distribution of profits of any

entity made pursuant to Section 53, including the capitalization of

profits.

(ai) "Unit trust" means a trust to be divided on the basis fixed with

the number of the units holding the right of the persons entitled to

participate in income or capital, with a provision that the trustee

holds property for the benefits of at least twenty persons.

(aj) "Employment" means any kind of past, present or future

employment.

(ak) "Royalty" means any payment made under the lease of any

intangible property, and this term includes any payment made for

the following purpose:

(1) To use or have the right to use a copy right, patent, design,

model, plan, secret formula or process or trademark,

(2) To render technical know-how,

(3) To provide the right to use any motion picture film, video

tape, sound recording or similar other means and to render

industrial, occupational or scientific experience,

(4) To render any assistance in a manner to be ancillary to the

matters referred to in clauses (1), (2), or (3), or

(5) To have full or partial restrictions on the matters referred

to in (1), (2), or (3) or (4).

Provided that, this term does not mean any payment

made for natural resources.



(al) "Investment" means the act of holding one or more properties of

similar nature used in an integrated manner or investing such

properties, except with the followings:

(1) Holding any property other than a non-occupational taxable

property used by the owner thereof in personal use or investing

money in such property, or

(2) Employment or occupation.

(am) "Investment insurance" means any of the following insurance:

(1) An insurance against the death of the insured or of the

associated person of the insured,

(2) An insurance against personal injuries of the insured or his

associated person or against any event leading to

incapacity in any particular manner,

Provided that, the validity period of the insurance

contract shall be at least five years or the contract shall be

without any validity period and the contract is so made

that it cannot be terminated by the insurer prior to

expiration of a period of five years except in exceptional

circumstances.

(3) An insurance so made that any money or series of moneys

are paid to the insured in the future,

(4) Reinsurance of the insurance referred to in clauses (1), (2)

or (3), or

(5) Reinsurance of the reinsurance referred to in clause (4).

(an) "Dividend" means the distribution to be made by an entity.



(ao) "Resident person" means the following person in respect of any

income year:

(1) In respect of a natural person,

(a) Whose normal abode is in Nepal,

(b) Who has resided in Nepal for 183 days or more

during a continuous period of 365 days of any

income year, or

(c) Who is deputed by Government of Nepal to a

foreign country in any time of the income year.

(2) A partnership firm,

(3) In respect of a trust, such trust

(a) Which is established in Nepal,

(b) The trustee of which is a resident person in an

income year,

(c) Which is controlled by a resident person or by a

group of persons comprising such a person, directly

or through one or more interposed entities,

(4) In respect of a company, such company,

(a) Which is incorporated under the law of Nepal,

(b) Management of which has been effective in Nepal

in any income year.

(5) Village Development Committee, Municipality, or District




(6) In respect of an entity of any foreign government or

provincial and local government under that government,

such entity,

(a) Which is established under the laws of Nepal, or

(b) Management of which is effective in Nepal in any

income year.

(7) An organization or entity established under any treaty or

agreement, and

(8) A foreign permanent establishment of a non-resident

person situated in Nepal.

(ap) "Person" means a natural person or entity.

(aq) "Manager" means any person involved in making managerial

decisions of any entity, and this term includes a trustee of any

trust and a person having ownership in a foreign permanent

establishment.

(ar) "Occupation" means any kind of industry, business, profession or

business transactions of similar other nature, and this term

includes past, present or future occupations of similar type.

Provided that, this term does not include employment.

(as) "Interest" means the following payment or profit:

(1) Payment under debt liability except the principal,

(2) Profit made from concession, premium, alteration

payment or from similar payment, and

(3) The amounts referred to in Section 32 receivable as an

interest out of the payment to be made by a person who



acquires any property under annuities or installment sale

or of the payment made to any person for the use of any

property under a financial lease.

(at) "Stock-in-trade" means the property owned by any person and

sold or to be sold in the course of regular business carried on by

such person, the property in work-in-progress and the inventory

of materials to be incorporated in the property. Provided that, this

term does not include a property held in foreign currency.

(au) "Occupational asset" means any property used in any occupation.

Provided that, this term does not mean stock-in-trade or

depreciable assets of the occupation.

(av) "Distribution" means a distribution to be made by any entity as

referred to in Section 53.

(aw) "Income sent abroad" means an income required to be sent

abroad by a foreign permanent establishment of a non-resident

person situated in Nepal as referred to in Section 68, which has

been sent abroad through a bank or paid in any other manner.

(ax) "Foreign income tax" means a foreign income tax referred to in

Sub-section (8) of Section 69 levied by any foreign country.

(ay) "Foreign permanent establishment" means an entity referred to in

paragraph (4) of clause (x).

(az) "Department' means the Department of Inland Revenue.

(aaa) "Property held in foreign currency" means any property held in a

foreign currency other than Nepalese rupees.



(aab) "Permanent establishment" means a place where any person

carries on a business fully or partly, and this term includes the

following place:

(1) A place where any person carries on a business fully or

partly, through any agent except a general agent who acts

independently in the ordinary course of carrying on

business,

(2) A place where any person's main equipment or main

machinery is situated or used or installed,

(3) One or more than one place in any country where any

person has delivered technical, professional or consultancy

service through an employee or in any other manner for

more than ninety days at one or several times in a period

of any twelve months, or

(4) A place where any person is involved in a construction,

installation or establishment project and has carried out

supervisory works of that project for a period of ninety

days or more.

(aac) "Property" means a tangible or intangible property of any kind,

and this term includes currency, good-will, technological

knowledge, assets, any person's ownership or interest in a foreign

branch, a right to make income or acquire income in the future

and any part of such property.

(aad) "Associated person" means any one or more than one person or

group of persons who act as per the intention of each other, and

this term includes the following persons:

(1) A natural person and relative of that person or any person

or a partner of that person,



(2) A foreign permanent establishment and a person having

ownership in that establishment, and

(3) Any entity which by itself or jointly with any other person

related with it or with an assisting entity or any other

person or entity related with such assisting entity controls

Fifty percent or more of the income, capital or voting

right of any entity or derives benefits therefrom.

Provided that, the following person shall not be an

associated person:

(1) An employee,

(2) A person specified by the Department as a non-

associated person.

(aae) "Partnership" means a firm consisting of less than twenty

partners, whether registered under the law in force or not.

Provided that, this term does not include a sole

proprietorship or joint venture, whether registered or not.

(aaf) "General insurance" means insurance other than investment

insurance.

(aag) "General interest rate" means the rate of interest by Fifteen

percent per annum.

(aah) "Approved retirement fund" means a retirement fund having

obtained approval from the Department pursuant to Sub-section

(1) of Section 63.

(aai) "Service charge" means any charge paid to any person, according

to the market value, for the service rendered by such a person,



and this term includes any commission, meeting allowance,

management fee or technical service charge.

(aaj) "Shareholder" means a beneficiary of any company.

(aak) "Depreciable property" means a property, which is used in any

business or investment for earning income, and declines in value

because of wear and tear, being old or passage of time.

Provided that, this term does not mean stock-in-trade.

(aal) "Beneficiary" means a person who has an interest in any entity

related with the work.

(aam) "Prescribed" or "as prescribed" means prescribed or as prescribed

in the Rules framed under this Act.

Chapter-2

Tax Bases

3. Tax to be levied : Tax shall be levied on each of the following persons

in each income year and be collected/ realized pursuant to this Act:

(a) A person who has taxable income in any income year,

(b) A non-resident person's foreign permanent establishment situated

in Nepal, which sends income of any income year pursuant to

Sub-sections (3) and (4) of Section 68, and

(c) A person who receives payment final tax withholding in any

income year.



4. Computation and rate of tax: (1) The amount of tax required to be

paid by any person referred to in Section 3 for any income year shall be

equal to the total amount of tax required to be paid by such person.

(2) In computing the tax required to be paid by any person

referred to in clause (a) of Section 3, it shall be computed by applying

the related rates mentioned in Schedule-1 to the taxable income of that

person. In so computing the tax, it shall be computed by deducting the

amount that is adjustable in tax, and claimed by that person pursuant to

Section 51 or 71.

(3) Notwithstanding anything contained in Sub-section (2), the

tax payable by a resident natural person referred to in clause (a) of

Section 3, who has fulfilled all of the following requirements, shall be

equal to the total amount of tax deducted pursuant to Section 87 from

the payments made by the employer to such a natural person in that

income year:

(a) Only the income of any employment having source

in Nepal is included in the income of that income

year,

(b) All employers have become non-resident persons in

that income year and there is only one employer at

one time, and

(c) The employer has not made a claim for the

adjustment of tax pursuant to Section 51 in taxable

income, except for the medical expenses and

retirement contribution paid by him and for

subtraction of the expenses referred to in Sub-

sections (2) and (3) of Section 63 and of the

expenses referred to in Section 12.




tax payable in any income year by a resident natural person referred in

clause (a) of Section 3, who has fulfilled all of the following

requirements, shall be equal to the amount mentioned in Sub-section (7)

of Section (1) of Schedule –1:

(a) That person has only income earned from his

business having source in Nepal in that income

year,

(b) The income earned from the business and turnover

of the business do not exceed the ceiling mentioned

in Sub-section (6) of Section (1) of Schedule –1,

and

(c) That person has so opted that this provision is

applicable in that income year.

(5) In computing the tax required to be paid by any foreign

permanent establishment referred to in clause (b) of Section 3, it shall be

computed by applying the related rates mentioned in Sub-section (6) of

Section 2 of Schedule-1 to the income sent abroad by such

establishment in that income year.

(6) The amount of tax required to be paid by the person referred

to in clause (c) of Section 3 shall be equal to the total amount computed

by applying the rates mentioned in section to the amount of each

payment liable to final tax deduction received by that person in that

income year.

5. Taxable income and classification of income headings : The taxable

income of any person in any income year shall be equal to the amount

computed by subtracting the amount, if any, claimed pursuant to Section



12 or 63 from the grand total amount of assessable income of each of

the following income headings in that income year:

(a) Business,

(b) Employment, and

(c) Investment.

6. Assessable income : Subject to this Act, the following incomes earned

by any person for any business, employment or investment in any

income year shall be considered assessable income:

(a) Income earned by any resident person from his employment,

business or investment in that income year irrespective of the

place of his source of income, and

(b) Income earned in that income year by any non-resident person

from employment, business or investment having income source

in Nepal.

Provided that, the assessable income shall not include any

income exempted from tax pursuant to section 11 or 64.

Chapter-3

Computation of Tax

7. Computation of income from business : (1) The profits and benefits

made by any person in any year from any business shall be computed in

the income of that business of that person in that income year.

(2) In computing the profits and benefits earned by any person

from the business in any income year, it shall be computed so as to

include the following amounts received by that person within that year:

(a) Service charge,



(b) Amount obtained from the disposal of stock-in-

trade,

(c) Net profit derived from the business property or

business liability of any person computed pursuant

to Chapter-8,

(d) Amount considered to have been derived pursuant

to clause (a) of Sub-section (2) of Section 4 of

Schedule-2 from the disposal of depreciable

property of the business,

(e) Gift received from any person in respect of the

business,

(f) Amount received for having accepted any

restriction in respect of the operation of the

business,

(g) Notwithstanding that the amount received by any

person is of such nature that it is included in

income from investment, the amount received by

such a person being directly related with his

business, and

(h) Other amounts liable to be included pursuant to

Chapter-6 or 7 or Section 56 or 60.


amounts deductible under sections 10, 54 and 69 and payments from

which tax is withheld finally may not be included in computing the

profits and benefits derived from the operation of business.

8. Computation of income earned from employment : (1) The

remuneration derived by any natural person from employment in any



income year shall be computed as the income earned by that person in

that year.

(2) The following payments made by an employer to a natural

person in any income year shall be included in computing the

remuneration earned by such natural person from employment in that

income year:

(a) Amount for wages, salary, leave, amount for

overtime work, fee, commission, prize, gift, bonus,

and payment for other facilities,

(b) Payment for any personal allowance including

amount for dear allowance, subsistence allowance,

entertainment and transport allowance,

(c) Payment received for settlement of or

reimbursement of expenses incurred by him/her or

his/her associated person for personal purpose,

(d) Payment made for having given consent to any

terms of employment,

(e) Payment made for termination, loss of employment,

or for compulsory retirement,

(f) Retirement payment and retirement contribution

including the amount deposited by the employer for

that employee in the retirement fund,

(g) Other payments made in respect of employment,

and

(h) Other amounts required to be included pursuant to

Chapter-6 or 7.




following matters need not be included in computing the remuneration

earned by any natural person from employment:

(a) The amounts deductible under Sections 10 and

payment from which tax is withheld finally,

(b) Food and Tiffin provided by the employer to the

employee at the work site in a manner that it is

available to all employees on the same terms,

(c) The settlement or reimbursement of the following

expenditure incurred by any employee:

1. The expenditure fulfils the business purpose

of the employer, or

2. The expenditure exempted or to be

exempted in the computation of the income

earned from investment.

(d) Payment of such petty amounts of which accounts

are impracticable to be maintained or difficult to be

maintained administratively as prescribed.

Explanation: For purposes of this section,

"payment" means the payment:-

(a) made by the employer,

(b) made by the associated person of the

employer, and

(c) made by any third person as referred to in

the agreement made with the employer or his

associated person.



9. Computation of income earned from investment : (1) the profits and

benefits derived by any person from investment in any income year shall

be computed as the income earned by that person from investment in

that year.

(2) The following amounts received by any person in any income

year shall be included in computing the profits and benefits derived by

that person from investment in that income year:

(a) Dividend, interest derived from that investment,

payment for natural resources, rent, royalty, profit

from investment insurance, profit from interest in a

retirement fund which has not got approval

pursuant to Sub-section (1) of Section 63 or

retirement payment made from the approved

retirement fund,

(b) Net profits derived from the disposal of non-

business taxable property of the investment of that

person, computed pursuant to Chapter-8,

(c) If, in disposing the depreciable property of the

investment made by that person, the incomings to

be received exceed the remaining value comprising

the outgoings made for the property of the group of

depreciable property pursuant to clause (a) of Sub-

section (2) of section 4 of Schedule-2, the excess

amount,

(d) Gift received by that person in respect of

investment,

(e) Retirement payment made in respect of that

investment and retirement contribution including



the amount deposited in the retirement fund for that

person,

(f) Amounts received for having accepted any

restriction in respect of investment, and

(g) Other amounts required to be included pursuant to

Chapter-6 or 7 or Section 56.


following matters shall not be included in computing profits and benefits

derived by any person from investment:

(a) The amounts deductible under Sections 10, 54 and

69 and payment from which tax is withheld finally,

and

(b) The amounts to be included in computing income

by that person from employment or business.

Chapter-4

Exemptible Amounts and Other Exemptions

10. Exemptible amounts : The following amounts shall be exempted from

tax:

(a) Amount exempted from tax granted to any person entitled to tax

exemption facility as provided for in a bilateral or multilateral

treaty concluded between Government of Nepal and any foreign

country or international organization,

(b) Amount received by any natural person for doing employment in

the governmental service of a foreign country,

Provided that, -



(1) The person has to be a resident or non-resident

person only because of doing employment, and

(2) Such amounts have to be paid from the

governmental fund of that country.

(c) Amount received by a natural person referred to in clause (b) who

is not a citizen of Nepal or by his/her nearest family member from

the governmental fund of a foreign country,

(d) Amount received by a non-Nepalese citizen appointed in the

service of Government of Nepal under a the term and condition of

tax exemption,

(e) Allowances provided by Government of Nepal to the widow, aged

(senior citizen) or disabled,

(f) Amounts received as gift, inheritance or scholarship except the

amounts required to be included in computing income pursuant to

Sections 7, 8 or 9,

(g) Amounts received by an organization entitled to exemption for the

following:

(1) Donation, gift,

(2) Other contributions directly related with an organization

entitled to exemption as referred to in Clause (d) of

Section 2 without having consideration or without hoping

for such contribution, or

(3) Amount earned by Nepal Rastra Bank in consonance with

its objectives, or



(h) Amount received for pension by a Nepalese citizen having retired

from the military or police service of a foreign country from the

governmental fund of that country.

11. Professional exemptions and facilities : (1) No tax shall be levied on an

income earned by carrying on an agricultural business by getting one

registered as a firm, company, partnership and corporate body and on

agricultural income other than that earned from an agricultural business

in the land as referred to in clauses (d) and (e) of Section 12 of the Act

relating to Land, 2021(1964).

(2) No tax shall be levied on the income of a cooperative

organization and saving and credit cooperative organization or

institution, which has been registered and operated under the

Cooperatives Act, 2048 (1991) and which carries on agricultural and

forest based industries such as professional forest related enterprises

inclusive of sericulture and silk production, horticulture and fruits

processing, animal husbandry, dairy industry, poultry farming, fishery,

tea gardening and processing, coffee farming and processing,

herbiculture and herb processing, vegetable seeds farming, bee keeping,

honey production, rubber farming, floriculture and production, leasehold

forestry, agro-forestry etc., cold storage established for the storage of

fruits, agro-seeds, pesticides, fertilizers and agricultural inputs (except

those operated with mechanical power). No tax shall also be levied on

the dividends distributed by such organization or institution.

(3) Tax shall be levied as follows on the income earned by any

person from a special industry in an income year:

(a) If the person give direct employment to Six

Hundred or more Nepalese citizens through out the

year, Ninety percent of the rate of tax leviable on

the income of that year,



(b) If a special industry has been operated in remote,

undeveloped and underdeveloped areas,

respectively Seventy, Seventy-Five and Eighty

percent of the tax leviable on income of the years

for ten income years including the income year in

which such an industry started operating.

(4) In computing the income by the person entitled to exemption

pursuant to Sub-sections (1), (2) or (3), such person has to compute the

income as mentioned in the Sub-sections as if that only income were

derived by other separate persons.

(5) A person who is in a position to have more than one

exemption in respect of the same income pursuant to clauses (a) and (b)

of Sub-section (3) shall enjoy only one exemption chosen by him.

(6) Notwithstanding anything contained in Sub-section (3), in

cases where any other person has used the properties used to operate the

industry referred to in clause (b) for the operation of the industry of the

same type previously, the period during which they have been so used

shall also be reckoned, while reckoning the time-limit referred to in that

Sub-section.

Explanation: For purposes of this Section:-

(a) "Agricultural business" means a business of producing

crops from a public or private land or acquiring rent or

crops from a tenant using the land.

(b) "Remote", "undeveloped" and "underdeveloped area"

means the areas as referred to in Schedule-3 of the

Industrial Enterprises Act, 2049(1992).

(c) "Special industry" means a production-oriented industry as

classified in Section 3 of the industrial Enterprises Act, www.lawcommission.gov.np28


2049 (1992) except an industry producing cigarette, Bidi,

Sigar, tobacco, Khaini, other productions of the same

nature involving tobacco as the principal raw materials,

liquors, beer and products of similar kind.

12. Donation, gift given to organizations entitled to tax exemption : (1) In

computing his taxable income in any income year, any person may

make claim to subtract the amount of donation, gift given to an

organization entitled to tax exemption approved by the Department for

the purpose of this section.


expenditure deductible in any income year under that Sub-section shall

not exceed One Hundred Thousand Rupees or five percent of the taxable

income assessed without making deduction for the gift of that person in

that year as referred to in Sub-section (1) and without including in the

computation the limits referred to in Sub-section (2) of Section 17 and

Sub-section (2) of Section 18, whichever is lesser.

(3) Notwithstanding anything contained in Sub-sections (1) and

(2), in any special situation, Government of Nepal may, by a notification

in the Nepal Gazette, so specify that any amount spent or donated by

any person for any specified work may be deducted fully or partly for

expenditure, in determining the income of that person.

Chapter-5

Deductible Amounts

13. General deduction : Any person may, for the purpose of computing his

income from any business or investment in any income year, deduct the

following expenditures related with the transactions, subject to this Act:-

(a) Made in that income year,



(b) Made by that year, and

(c) Made in earning income from the business or investment.

14. Interest deduction : (1) Any person may, for the purpose of computing

his income from any business or investment in any income year, deduct

all interests chargeable in that year under the following debt liabilities of

that person:-

(a) If the debt liability has created for having borrowed

any amount, and that amount has been used in that

year or used to buy any property used in that year,

or

(b) That debt liability has been created in any other

circumstance.

Provided that, such a debt liability has to be

created for the act in which income is earned from a

business or investment.


total interest amount which a resident entity controlled by an

organization entitled to tax exemption can deduct under that Sub-section

in any income year shall not exceed the total of the following amounts:

(a) All interest amounts obtained in that year to be

included in the computation of the taxable income

of that entity, and

(b) Fifty percent amount of the taxable income of that

entity in that year, which has been computed

excluding any interest derived by that entity or

without deducting any interest paid by that entity.



(3) Any interest not allowed to be deducted or not deducted

pursuant to Sub-section (2) may be carried forward or credited in the

forthcoming income year.

Explanation: For purposes of this section, " a resident entity controlled

by an organization entitled to tax exemption" means an entity which,

being a resident entity in that year, is subject to a vested ownership or

control of twenty five percent or more of the following persons or

organizations in any time of that year:-

(a) An organization entitled to tax exemption and a

person associated with that organization,

(b) A person entitled to tax exemption pursuant to

section 11 in that year or a person associated with

that person,

(c) A non-resident person or a person associated with

the non-resident person, or

(d) Any combination of the persons referred to in

clauses (a), (b) and (c).

15. Allowances for cost of stock-in-trade : (1) For the purpose of

computing the income earned by any person from any business in any

year, any other allowances shall be allowed except the allowances for

the cost computed pursuant to Sub-section (2) in respect of the disposal

of the stocks-in-trade of the business of that person in that year.

(2) The allowance for the cost referred to in Sub-section (1) shall

be computed as follows by deducting the amount referred to in clause

(b) from the amount referred to in clause (a):-

(a) The amount to be set by adding the cost of the

stock-in-trade derived from any business in any



income year to the initial value of the stock-in-

trade of that business in that year,

(b) The amount of final value of the stock-in-trade of

any business in an income year referred to in

clause (a).

(3) The initial value of the stock-in-trade of any business in any

income year shall be the final value of the stock-in-trade of that business

at the end of last income year.

(4) Whichever is lesser out of the following amounts shall be

considered the final value of the stock-in-trade of that business of that

income year:-

(a) The cost of the stock-in-trade of that business at the

end of that income year, or

(b) The market value of the stock-in-trade of that

business at the end of that income year.

(5) In computing the cost of the stock-in-trade of a business, a

person has to do as follows subject to Section 45 and Sub-section (6):-

(a) In computing the income of a business, in the case

of a person maintaining the accounts on the cash

basis, by using the method of cost price or

consumption cost, and

(b) In computing the income of a business, in the case

of a person maintaining the accounts on the accrual

basis, by using the method of consumption cost.

(6) If the stock-in-trade of business of any person cannot be

determined, that person may choose to the first in first out method or

average cost method to compute the cost of stock-in-trade.www.lawcommission.gov.np32


Provided that, once such a method is selected, that method cannot

be altered without written permission of the Department.

(7) In computing the cost of stock-in-trade pursuant to Sub-

section (5), it has to be computed by the following method:-

(a) In computing as per the consumption cost method,

to so compute the cost of the stock-in-trade under

the widely recognized accounting principle that it is

equal to the sum total of direct material cost, direct

labor cost and overhead cost of factory.

(b) In computing as per the cost price method, to so

compute the cost of the stock-in-trade under the

widely recognized accounting principle that it is

equal to the total sum of direct material cost, direct

labor cost and alterable overhead cost of factory.

(8) In computing the cost of stock-in-trade pursuant to Sub-

section (6), it has to be computed by the following method:-

(a) In computing as per the average cost method, to

compute on the basis of all weightage average costs

of the stock-in-trade of the same type in the business

under the widely recognized accounting principle.

(b) In computing as per the first in first out method, to

compute on the basis that the stock-in-trade received

first is also disposed first, under the widely

recognized accounting principle.

Explanation: For purposes of this Section,-

(a) "Direct labour cost" means the labor cost directly

related with the production of the stock- in-trade.



(b) "Direct material cost" means the cost of materials

which are or will be an integral part of the stock-in-

trade.

(c) "Overhead cost of factory" means the total cost

incurred in producing stock-in-trade except the

direct labor cost and direct material cost.

(d) "Alterable overhead cost of factory" means the

overhead cost of factory that alters directly with a

change in the produced quantity of stocks in-trade.

16. Repair and maintenance expenses : (1) In computing the income of

any business or investment in any income year, a person may deduct all

expenses incurred in the repair and maintenance of the depreciable

property owned and used in that year to earn income from that business

or investment.


deducting the expenses allowable under that Sub-section, it shall not

exceed five percent of the depreciation base amount of the group of

property remaining at the end of that income year, and in cases where

expenses are incurred in excess thereof, such deduction can be made

only as per the order of such expenses incurred.

(3) Any excess expense or part thereof which is not deductible

pursuant to Sub-section (1) because of the limit referred to in Sub-

section (2) may be added to the depreciation base amount of the group

of the concerned property pursuant to Sub-section (5) of Section 2 of

Schedule 2.

17. Pollution control expenses : (1) For purposes of computing the income

earned by any person from any business in any income year, such



person may deduct the pollution control expenses to the extent incurred

in the operation of that business in that year.


computing the limit of expenses deductible under that Sub-section in

any income year, it shall not exceed Fifty percent of the taxable income

computed without deducting pollution control expenses of all businesses

operated by that person and without including in computation the limits

referred to in Sub-section (2) of Section 12 and Sub-section (2) of

Section 18.

(3) Any excess expense or part thereof which is not deductible in

excess of the limit referred to in Sub-section (2) may be capitalized and

depreciated pursuant toSchedule-2.

Explanation : For purposes of this Section, "pollution control expenses"

means the expenses incurred by any person related with any process for

the purpose of controlling pollution or protecting or conserving the

environment in other manner.

18. Research and development expenses : (1) For purposes of computing

the income earned by any person from any business in any income year,

such person may deduct the research and development expenses to the

extent incurred in the operation of that business in that year.


computing the limit of expenses deductible under that Sub-section in

any income year, it shall not exceed Fifty percent of the taxable income

of that person computed without deducting research and development

expenses of all businesses operated by that person and without including

in computation the limits referred to in Sub-section (2) of Section 12

and Sub-section (2) of Section 17.



(3) Any excess expense or part thereof which is not deductible in

excess of the limit referred to in Sub-section (2) may be capitalized and

depreciated pursuant to Schedule-2.

Explanation : For purposes of this Section, "research and development

expenses" means the expenses incurred by any person for the purpose of

controlling developing his business and improving commercial

production and process.

Provided that, such expenses shall not include the cost at the time

of acquiring any property referred to in Sub-section (3) of Section 1of

Schedule-2.

19. Depreciation deduction expenses : (1) For purposes of computing the

income earned by any person from any business or investment in any

income year, such person may deduct depreciation pursuant to

Schedule-2 in lieu of depreciation of the depreciable properties owned

and used by that person in that year in making income from that

business or investment.


following provisions shall be applicable in respect of the deduction for

depreciation of the devices, equipment and other machineries installed

by any entity in the projects which involve construction and operation of

public infrastructures and are transferred to Government of Nepal and in

the projects on construction of powerhouses and generation and

transmission of electricity:-

(a) If the devices, equipment and other machineries

installed previously become obsolete because of

being old or worn and torn and new devices,

equipment and other machineries have to be

installed in lieu thereof, the value which remains by

subtracting depreciation deduction until the income



year from the cost of the property, which has

become obsolete property because of being old or

worn and torn, installed previously in that income

year in which they were so installed may be

deducted as expenses.

(b) In respect of properties other than the old properties

replaced pursuant to clause (a), if any value

remains by subtracting depreciation deduction until

the income year when transfer takes place from the

cost of those properties at the time when the entity

transfers such a project to Government of Nepal,

the entity may deduct such a remaining value as

expenses.

20. Loss from business or investment : (1) For purposes of computing the

income earned by any person from any business or investment in any

income year, such person may deduct the loss as mentioned below:-

(a) Loss suffered by that person from any other

business and not deducted in that year, and

(b) Loss suffered by that person from any business and

not deducted in the last four income years.

Provided that, in the case of the projects which involve

construction and operation of public infrastructures and are transferred

to Government of Nepal and the projects on construction of

powerhouses and generation and transmission of electricity, loss not

deducted in the last seven income years.

(2) For purposes of computing the income earned by any person

from any investment in any income year, such person may deduct the



loss suffered by that person from any other investment and not deducted

in that year.

(3) Subject to Sub-sections (1) and (2) and for purposes of these

Sub-sections, any loss suffered by any person in respect of the foreign

source and not deducted may be deducted only in computing the income

earned by that person from his foreign source, and the loss suffered in

earning any non-taxable income and not deducted may be deducted only

in computing non-taxable income of that person.

(4) Subject to Sub-sections (1) and (2), if any person suffers a

loss in an income year when a long-term contract obtained by any

person by making competition of the business at the international level

was completed or when a disposal was made in any other manner or a

loss which was not deducted and the liability whereof is allowed to be

carried forward in the coming year pursuant to clause (b) of Sub-section

(1) is related with a long-term contract, the Department may, by a notice

in writing, give permission to deal with that loss as follows:-

(a) The loss may be carried backward in last income

year or years, and

(b) The loss may be treated as not deducted only to the

extent of the excess where, in computing the

income of the business related with that long-term

contract, the amounts to be included in the

incomings exceed the amounts to be included in the

outgoings.

(5) The following loss suffered by any person in any income year

has to be allocated as if it were related with a long-term contract or

contracts of that person:-



(a) The loss resulted from a long-term contract or

contracts related with the business, and

(b) The loss on excess of the expenses to be deductible

in computing the income earned from that business

in the year related with the contract for each such

contract.

(6) If, in computing the income earned by any person in any

income from more than one business or investment, that person is

allowed to deduct the loss not deducted from more than one business or

investment, that person may on his own determine the priority of the

business or investment from which the portion of loss is deducted.

(7) If, in computing the loss suffered by any person from any

business or investment in any income year, this section is not used and

the deductible amounts exceed the amounts includable in computing the

income from the business or investment of that person, such excess

amounts have to be computed.

Explanation: For purposes of this Section, "the loss not deducted" means

the loss to the extent not deducted in computing the income of any

person pursuant to Sub-sections (1), (2) or (4).

21. Expenses that may not be deducted : (1) Notwithstanding anything

contained elsewhere in this Act, for the purpose of computing the

income earned by any person from any business, employment or

investment in any income year, the following expenses or amounts shall

not be deducted:-

(a) Expenses of domestic or personal nature,

(b) Tax payable under this Act and a fine or similar

other fee paid to the government of any country or



any local body thereof for a violation of any law or

regulation, byelaw framed thereunder,

(c) Expenses to the extent of those spent by any

person to obtain the amounts enjoying exemption

pursuant to section 10 or expenses made to obtain

the amounts from which tax has been deducted

finally,

(d) Expenses for the payments referred to in Sub-

section (2),

(e) Distribution of profits by any entity, or

(f) Similar other amounts despite that they are not so

mentioned in clauses (a), (b), (c), (d) and (e) as not

to be deductible, except those allowable under this

Chapter or Chapters-6, 7, 10, 12 or 13.

(2) If a person, whose annual turnover is more than two million

rupees in any income year, makes a cash payment of more than Fifty

Thousand Rupees at a time in that income year except in the following

circumstances, he shall not be allowed to make that deduction:-

(a) Payment made to Government of Nepal,

constitutional body, corporation or bank or

financial institution owned by Government of

Nepal,

(b) Payment made to a farmers or producer producing a

primary agro-product and payment to a farmer who

has processed such product on his own,

notwithstanding that primary processing of such

product has already been carried out,



(c) Payment for retirement contribution or retirement

payment,

(d) Payment made in a place where banking services

are not available,

(e) Payment made on the day when banking services

are closed or payment involving a mandatory

provision of payment in cash, or

(f) Amount deposited in a bank account of the

recipient of payment.

(3) Subject to the provisions of Sections 14, 15, 16, 17, 18, 19, 20

and 71, no amount shall be deductible for capital expenses or foreign

income tax.

Explanation: For purposes of this section,-

(a) "Expenses of domestic or personal nature" means the following

expenses:-

(1) Expenses made for any natural person, and inclusive of the

following expenses made for the interest of a loan to the

extent that the loan has been used for personal purpose:

(a) Expenses made for a natural person for the

provision of lodging, fooding, tiffin, and other

activities of entertainment or amusement,

(b) Expenses for the movement by a natural person

from his house to the place where the business or

investment is operated except for the movement in

the course of business or investment,



(c) Expenses made to purchase clothes for a natural

person except those clothes which are not proper to

put on at other times than working times, and

(d) Expenses made for education or training.

Provided that, the expenses made only for

the education directly related with the business or

investment, where no degree or diploma is

achieved.

(2) Except in the following conditions and to that extent,

expenses incurred in respect of a payment made by any

person to any natural person and expenses made for a third

person:-

(a) If that payment has been included in computing the

income of a natural person,

(b) If the natural person has made, as a consideration, a

return payment to that person in a sum equal to the

market value of the payment received by him,

(c) If payment is made for such prescribed petty

amounts of which accounts are difficult or

administratively impracticable to be maintained.

(b) " Place where banking service is available" means

any place within ten kilometers area whereof

banking service is available.

(c) " Cash payment" means a payment except a

payment by a letter of credit, cheque, draft, money

order, telegraphic transfer, money transfer (hundi)

through a bank or financial institution and a transfer



made by any other means between banks or

financial institutions.

(d) "Capital expenses" means the following expenses:-

(1) Expenses incurred in feasibility study,

exploration and development of natural

resources,

(2) Expenses incurred in acquiring any property

with useful life for more than twelve months, or

(3) Expenses in disposing a liability.

Chapter-6

Tax Accounting and Time

22. Method of tax accounting : (1) The matter when any person gets any

income or makes any expense shall be determined in accordance with

the widely recognized accounting principle, subject to this Act.

(2) A natural person shall, while computing the income to be

earned from his employment and investment, maintain accounts on the

cash basis, for purposes of tax.

(3) A company shall maintain accounts on the accrual basis, for

purposes of tax.

(4) Except in cases where the Department has otherwise specified

by issuing a notice in writing, any person may, for purposes of income

tax, maintain accounts on the cash or accrual basis, subject to Sub-

sections (1), (2) and (3).

(5) Any person may make an application to change the method of

accounting for tax purposes, subject to Sub-sections (2) and (3). If the



Department thinks that it is necessary to change the method of

accounting to clearly show the income of such person, the Department

may give permission to change the method of accounting.

(6) If the method of accounting of any person for purposes of tax

is changed pursuant to Sub-section (5), in computing the income of that

person in the income year when such change is made, adjustment has to

be so made that no amounts out of those included, deducted or to be

included or deducted are omitted or duplicated.

23. Cash basis accounting : Any person shall, in maintaining accounts on

cash basis of his income earned from employment, business or

investment for tax purposes, subject to this Act, do as follows:-

(a) To treat as income only that which is received at the time when

payment is received by him or made available to him and include

it in his income.

(b) To deduct for expense only after he pays out.

24. Accrual basis accounting : (1) Any person shall, in maintaining

accounts on the accrual basis of his income earned from business or

investment subject to this Act, for purposes of tax, any income shall be

included in computation of his income, considering that any payment

has been received immediately when the right to receive such payment

is created.

(2) For purposes of making deduction from computation of

income earned by any person as mentioned in Sub-section (1), the

following expenses shall be deemed to have been borne:-

(a) If any payment involving such expenses has been

made in lieu of a payment made by any other

person, the expenses shall be deemed to have been

borne in the following conditions:-



(1) The person has the liability to make that

person,

(2) The value of such liability can be ascertained

in a proper and real manner, and

(3) Payment has been received from another

person.

(b) In all other circumstances except those mentioned

in clause (a), an expense shall be deemed to have

been borne at the time when payment is made.

(3) If the tax is reduced, the Department may, in the following

circumstances, and by a written notice to a person who maintains

accounts on the accrual basis to compute the income earned from any

investment or business, adjust the time of making payment in order to

stop carrying forward or reducing income for purposes of tax:-

(a) If the following circumstance occurs,-

(b) If any expense could be deducted in computing the

income for any income year but that person had to

maintain accounts on the cash basis for tax

purposes, that expense could have been deducted in

any forthcoming income year,

(c) Any person received any payment that has to be

included only in computing the income of the

coming income year but if he had to maintain

accounts on cash basis for tax purposes, the amount

of payment would have been included in the

income year of receipt of that payment, and



(d) If the receiving and making of payment by any

person in any income year reduced the total amount

of tax payable.

(4) In computing, on the accrual basis, the income earned by any

person from a business or investment, the differences that could occur in

the following circumstances have to be adjusted properly in receiving or

making payment:-

(a) If that person includes any payment in quantity

which he could receive or deducts any payment in

quantity which he has to bear, and

(b) If there occurs difference in the amount received or

borne by receiving or making payment by that

person in different quantity, because of, inter alia,

difference in valuation of the currency after the

performance of the act referred to in clause (a).

25. Reverse of the amounts including bad debts: (1) In maintaining

accounts of the amounts received and expenses borne in the computation

of the income earned by any person from any employment, business or

investment, the person has to make proper adjustments at the time of

reimbursement, recovery, relinquishment of claim, writing off, or

remission in any of the following circumstances:-

(a) Where the person subsequently gets the amount

reimbursed, or recovers the expense, as the case

may be,

(b) Where the accounts of the amount received have

been maintained on the accrual basis and the person

subsequently relinquishes his right to receive that



amount or where that amount is a debt claim of that

person and he writes off the debt as a bad debt, or

(c) Where the accounts of the expense incurred have

been maintained on the accrual basis and the person

subsequently relinquishes his liability to incur such

expense or where that expense is a debt claim, the

person whom the debt is to be repaid remits the

debt.

(2) Any person may relinquish the right to receive any amount or

to write off the debt liability of that person as a bad debt only in the

following circumstances:-

(a) In the case of a debt claim of any financial

institution or bank, the debt claim is converted into

a bad debt as per the specified criteria, and

(b) If, after having followed all proper measures to

receive payment in circumstances other than those

referred to in clause (a), that person is reasonably

satisfied that the right or debt claim cannot be

realized or recovered.

26. Method of deriving the average of the amounts includible and

deductible under a long-term contract : (1) For purposes of computing

the income earned by any person from any employment, business or

investment in any income year, the estimated amounts includible and

deductible according to the sum of sequential increase as per the

percentage of completion of the contract under the long-term contract of

that person, shall be deemed to have been received or spent.

Explanation : For purposes of this section, "long-term contract" means

a contract in the following circumstance":-



(a) A contract with a validity period of more than

twelve months, and

(b) A contract with a deferred consideration except a

contract which is concluded for production,

installation or construction or for the discharge for

relevant services for each of such works or which

does not contain such elements.

(2) A contract with a deferred consideration, a contract to be

included according to the sum of sequential increase, a contract to be

deducted according to the sum of sequential increase, an excluded

contract and a contract of completion percentage shall be as prescribed.

Chapter-7

Quantification, Allocation and Characterization of Amounts

27. Quantification of amounts: (1) Any payment has to be quantified equal

to the following amount:

(a) In the case of a payment made by way of

transferring money or property by any person to

another person, amount equal to the market value

of the transferred money or property,

(b) The amount to be determined as prescribed for the

payment made for the provision of the following

matters or the amounts to be determined pursuant to

clause (e) where there is no provision for

determining the amount:-



(1) A motor vehicle used or made available for

use for personal purposes of the recipient of

payment in full or in part, or

(2) A building made available for the recipient

of payment.

(c) The amount which remains by deducting the

contributions of the recipient of payment from the

expenditure made by the person making payment

for the provision of the following things:-

(1) The services of a caretaker of the house,

cook, driver, gardener or other domestic

assistant,

(2) Any food, drinking or entertainment, or

(3) Services like water tap, electricity, telephone

installed in the residence of the recipient,

(d) If the interest paid by any person who has to

receive payment in any income year for a loan is

less than the amount of interest to be paid as per the

prevailing interest rate, the amount to the extent of

such a less,

(e) In respect of a payment except the payment referred

to in clauses (a), (b), (c) and (d), if a third person

receives payment instead of the recipient of

payment, the amount equal to the value of benefit

derivable generally.

(2) The time when a payment is earned, received, made, borne or

otherwise worked out for tax purposes in respect of clauses (a) and (e)



of Sub-section (1) shall be the time when the quantification of amounts

has been made.

28. Conversion in money : (1) If the income of a person and the amounts to

be included and deducted in assessing the income has been quoted in

other currency except Nepalese rupees, such amounts have to be

converted into Nepalese rupees.

(2) If the amounts to be included or deducted in computing the

income of any person in any income year have been quoted in other

currency except Nepalese rupees, such currency has to be converted into

Nepalese rupees as per the exchange rate prevailing at the time when the

amount was received, expended, paid, or otherwise worked out for tax

purposes.


cases where the department has, by issuing a notice in writing, given

permission for purposes of that Sub-section, any person may apply the

average exchange rate prescribed by the Department.

29. Indirect payments : In cases where any person intends to render

benefits to other person through payments made by the payer or a

person associated with him as follows, the Department may, by issuing a

notice in writing, treat such other person or the specified person as the

recipient of payment:-

(a) Where benefit is derived from any payment indirectly, or

(b) Where the recipient of any payment is specified.

30. Investment under joint owne rs hip : Any person has to allocate the

amounts to be included or deducted in computing the income for

purposes of computing the income earned from the investment under

joint ownership with other persons on the basis of proportion of the

respective interests of the joint owners in that investment.



31. Characterization of payment for compensation : In cases where any

person or his associated person has received any compensation amount

for the following matters including payments for insurance, at the time

of receipt of the amount for the compensation, such amount has to be

included, as the case may be, in computing the income earned from

employment, business or investment:-

(a) Compensation for any income earned or likely to be earned by

that person from any business or investment or for any amount to

be included in the computation of that income, or

(b) Compensation for any loss suffered or likely to be suffered by

that person from any business or investment or for any expenses

to be deducted in the computation of that income.

32. Characterization of payment under annuities, installment sale and

financial lease : (1) Any payment made by the person who acquires a

property under annuities or installment sale or payment made to any

person for the use of any property under a financial lease has to be

treated as the interest and return of capital under the debt claim under

this Section.

(2) All payments referred to in Sub-section (1) have to be

calculated in gross and the total sum thereof has to be divided into two

portions as follows:-

(a) Capital portion comprising all payments for

annuities as per necessity or equivalent to the

market value of any property at the time of selling

that property by installment or leasing it, and

(b) Interest portion to be set by subtracting the capital

portion from the total sum of all payments referred

to in Sub-section (1).



(1) In determining installments at the very time

when annuities, installment sale or financial

lease is carried out pursuant to Sub-section

(2), the seller has to provide a total payment

schedule clearly setting out the capital and

interest portions. One who cannot provide

such schedule has to treat the interest and

principal portion, annuities, installment sale

or financial lease as if they were mixed loans

with interest to be kept on adding in every

six months and allocate them in payments as

referred to in Sub-section (1).

(2) The borrower has to pay the principal in part

and the interest in part by working out the

portion of interest in the due and payable

principal at the time of each payment in a

manner that the rate of interest is the same

during the period of loan of payment to be

made pursuant to Sub-section (1) as if it

were a mixed loan.

(3) The following terms have to be fulfilled in

making a lease under a financial lease

pursuant to this section:-

(a) Where the lease agreement contains

an option that ownership is

transferred after expire of the validity

period of the lease or the lessee can

purchase that property at a certain

price or a foreseen price after expire

of the validity period of the lease,



(b) Where the period of lease exceeds

Seventy-Five percent of the useful

life of that property,

(c) Where the estimated market value of

that property after expire of the

period of the lease is less than twenty

percent of the market value of that

property prevailing at the beginning

of the lease,

(d) In the case of a lease that commences

prior to the ultimate twenty-five

percent life of the useful life of the

property, where the current value of

the minimum lease payment is equal

to ninety percent of the market value

of that property at the time of

commencement of the period of the

lease or more than that, or

(e) Where a property has been prepared

in a special manner for the lessee and,

after expire of the period of lease, that

property is not of practical use for any

other person except the lessee.

(6) Each payment referred to in Sub-section (1) shall be divided

into two portions pursuant to Sub-section (3), and the interest portion

under the debt claim has to be treated as paid or to be paid interest and

the capital portion as repayment of capital.



(7) A lessee under a financial lease shall be treated as the person

having ownership of the property leased, and the lesser shall be treated

as having debt claim over the lessee.

(8) The current value of the lease payment has to be computed by

applying discount rate equal to the normal interest rate.

Explanation: "Period of lease" means and includes an additional period

for which the lessee is entitled to have the lease renewed.

33. Price transferring and other arrangements between associated

persons : (1) In cases where any provision is made between the

associated persons and the provision is operated as per arms length, the

Department may, by issuing a notice in writing, distribute, appropriate

or allocate the amounts to be included or deducted in computing the

income between those persons in such a manner as to reflect the taxable

income or the payable tax that could be set for them.

(2) In carrying anything mentioned in Sub-section (1), the

Department may do as follows:-

(a) To re-characterize any income, loss, amount or

source and type of payment, or

(b) Where various expenses including main office

expenses which any person had to incur to operate

any business have yielded benefits to the associated

person or persons, to allocate such expenses

between the associated persons on the comparative

basis of the turnover of the business.

34. Division of income : (1) If any person attempts to divide his income

with another person and it appears that it will anyhow lessen the payable

tax, the Department may, in order not to allow such less in liability,



have the amounts to be included or deducted in computing the income

of each person adjusted by giving a notice in writing.

(2) The transfer of the following amounts by one or more

interposed entities directly or indirectly between persons and associated

persons as mentioned in Sub-section (1) and circumstances where

attempts are made to divide income to lessen the tax required to be paid

by the persons or associated persons by virtue of that transfer shall also

be included:-

(a) The amounts to be received and expenses to be

incurred, or

(b) The amounts to be received or used from any

property by the transferee of that property or

expenses incurred or payment made by that person

for the acquisition of ownership of that property.

(3) In determining as to whether or not any person has attempted

to divide any income pursuant to Sub-section (2), the Department shall

take the market value of any payment made for the transfer as the basis.

35. General rule against tax avoidance: For purposes of ascertaining the

tax liability pursuant to this Act, the Department may carry out the

followings:

(a) To re-characterize any arrangement or any part of such

arrangement made or attempted to be made as a part of a tax

avoidance scheme,

(b) To disregard any arrangement or any part of such arrangement

that does not show any substantial effect, or

(c) To re-characterize any arrangement or any part of such

arrangement that does not show any substantial element.



Explanation: For purposes of this Section, "tax avoidance

scheme' means any arrangement with a main objective to have

avoidance of tax liability or to lessen the tax liability.

Chapter-8

Assessment of Net Profit from Property and Liability

36. Net profits from property and liability : (1) The net profits derived

from the disposal of business property or liability of a business of any

person for any income year shall be computed by deducting the

following losses from the sum of all profits derived from the disposal of

business property or liability of that business in that income year:-

(a) The sum of all losses suffered in that year from the

disposal of business property or liability,

(b) The loss that could not be deducted elsewhere out

of the net loss suffered from any other business of

that person in that year, and

(c) The loss that could not be deducted out of the net

loss suffered from that business in any income year

or from any other business of that person in the

past.

(2) The net profits derived from the disposal of taxable non-

business property of investment of any person for any income year shall

be computed by deducting the following losses from the sum of all



profits derived from the disposal of taxable non-business of that

investment in that income year:-

(a) The sum of all losses suffered in that year from the

disposal of taxable non-business property of that

investment,

(b) The loss that could not be deducted elsewhere out

of the net loss suffered from any other business or

investment of that person in that year, and

(c) The loss that could not be deducted out of the net

loss suffered from that investment, any business or

any other investment of that person in any past

income year.

(3) Any person can make a claim for deduction pursuant to sun-

section (1) or (2) in respect of a loss suffered from the disposal of the

property or liability of foreign source only to the extent of the benefit

derived from the disposal of any property or liability of foreign source.

(4) If any person is entitled, under Sub-section (1) or (2) to

deduct the net loss suffered from a business or investment in more than

one computation pursuant to Sub-section (1) or (2), he may select

computations for the purpose of deducting that loss or portion thereof.

Explanation: For purposes of this Act,-

(1) "Net loss" means,-

(a) In respect of any business, the amount to the extent that

the loss suffered from the disposal of the business property

or liability of that business in any income year exceeds the

profit derived from the disposal of business property or

liability of that business in that year, and



(b) In respect of any investment, the amount to the extent that

the loss suffered from the disposal of the taxable non-

business property of that investment in any income year

exceeds the profit derived from the disposal of taxable

non-business property of that investment in that year.

(2) "Net loss that could not be deducted" means of any business or

investment,-

(a) The loss that could not be deducted pursuant to clause (b)

or (c) of Sub-section (1) or clause (b) or (c) of Sub-section

(2) out of the net loss suffered in that year, and

(b) Any loss of that business or investment that could not be

deducted referred to in Sub-section (7) of Section 20,

which could not be remitted by virtue of the time limit

referred to in Sub-section (1) or (2) of Section 20.

37. Profit and loss made from property and liability : (1) The profit

derived by any person from the disposal of any property or liability has

to be computed, considering it to be the extent that the sum of the

income derived from that property or liability exceeds the sum of the

outgoings for that property or liability at the time of disposal.

(2) The loss suffered by any person from the disposal of any

property or liability has to be computed, considering it to be the extent

that the sum of the outgoings for that property or liability exceeds the

sum of the income earned from that property or liability at the time of

disposal.

38. Expenses and net expenses for property and liability: (1) The

following expenses shall be included in the expenses for the property or

liability of any person, subject to this Act:-



(a) In respect of any property, the expenses made by

that person in acquiring that property, inclusive of

the following amounts:-

(1) The related expenses made in the

construction and production of that property,

and

(2) Any amount required to be included in the

assessment of the income of that person as a

result of acquisition.

(b) The expenses made by that person in obtaining the

ownership of that property or liability, inclusive of

the expenses incurred in the alteration,

improvement and repair and maintenance of the

property or liability, and the expenses in the repair

and maintenance of the property,

(c) The expenses made by him in the disposal of the

property or liability, and

(d) Casual expenses made by him in acquiring the

property or bearing liability and disposing such

property or liability.

Provided that, the expenses referred to in

clauses (a), (b), (c), (d), and (e) of Sub-section (1)

of Section 21 and the expenses that are allowed to

be deducted in the assessment of income are not

required to be included in such expenses.

(2) The net expenses for any property or liability at any particular

time shall be so computed as to consider the amounts to the extent of



excess of the sum of all expenses for that property or liability than the

sum of all incomes for that property or liability at that time.

(3) The amount of expenses to be deducted in computing the

income as referred to in Chapter-6 and 7 shall be deemed as if they were

made in respect of the expenses for any property or liability, and shall

be applicable in respect of the expenses referred to in Sub-section (1).

Provided that, Section 26 shall no apply in respect of the above-

mentioned provision.

39. Income and net income for property and liability: (1) The following

amounts shall be included in the incomes for the property or liability of

any person, subject to this Act:-

(a) The amounts received, in respect of the liability, by

that person in bearing the liability,

(b) The amounts to be received by that person in

acquiring the property or in respect of bearing the

liability, including the amounts acquired by altering

or lessening the value of the property or increasing

the liability, and

(c) The amounts received or to be received by that

person in respect of the disposal of that property or

liability.

Provided that, the amount exempted from

tax, taxable amount subject to tax deduction finally

or the amounts to be included in the income in

assessing the income of that person shall not be

included in such income.

(2) The net incomes for any property or liability at any time shall

include the amounts to the extent of excess of the incomes for that



property or liability than the sum of all expenses for that property or

liability at that time.

(3) The amount to be included in the income in computing the

income as referred to in Chapter-6 and 7 shall be deemed as if they were

made in respect of the incomes for any property or liability, and shall be

dealt with pursuant to Sub-section (1).

Provided that, Section 26 shall not apply in respect of the above-

mentioned provision.

40. Disposal of property or liability: (1) If the ownership of any person

over any property ceases, he shall be deemed to have disposed that

property. The disposal of property has to include acts such as

distribution of the property by the owner of the property, amalgamation

of the property in other property or liability, sale of the property in

installments or lease out to any other person under a financial lease,

cancellation, destroy, loss, expiration or surrender of the same.

(2) If the burden of liability of any person ceases, he shall be

deemed to have disposed that liability. The disposal of liability has to

include acts such as settlement, cancellation, release and completion of

the liability or amalgamation of liability in other liability or property.


(2), any person shall be deemed to have disposed any property or

liability in the following circumstances:-

(a) In respect of a natural person, immediately before

the death of that person,

(b) In respect of any property, if the sum of the

incomings for that property exceeds the sum of the

outgoings for that property,



(c) In respect of any property subject to debt claim,-

(1) If it has become a bad debt as per the

standards as prescribed in respect of a debt

claim of a bank or financial institution, and

(2) If, in any other circumstance, that person has

reasonably believed the debt claim as non-

recoverable.

Provided that, the person has to have

already pursued all proper measures to

recover that debt claim.

(d) If any person has started using a business property,

non-business taxable property, depreciable property

or stock-in-trade in a manner to alter the type

thereof, immediately before the use of the altered

form of that property,

(e) In the circumstances referred to in section 57 in

respect of any entity, and

(f) Immediately before that person has become a non-

resident person, except the land or building situated

in Nepal.

(4) If any person disposes any property by leasing it under a

financial lease pursuant to Sub-section (1), the lessee of that property

shall be deemed to have acquired the ownership of that property at the

time of disposal.

(5) The following provisions shall apply for purposes of

computing the profits derived by any person from the disposal of the

property or liability:-



(a) The amounts of net expenses for any property

under ownership of any person at the time of

commencement of this Act shall be deemed to be

equal to the market value of the property prevailing

at that time,

(b) The amounts of net incomes for liability of any

person at the time of commencement of this Act

shall be deemed to be equal to the amount as per

the market value of the liability prevailing at that

time.

41. Disposal along with retention of property or liability: If any person

disposes any property or liability in any manner referred to in clauses

(c), (d), (e) and (f) of Sub-section (3) of Section 40, the following

provisions shall apply:-

(a) In respect of property,-

(1) That person shall be deemed to have received the amount

equal to the market value of that property at the time of

disposal for the disposal, and

(2) The net outgoings made for that property until that time

shall be deemed to be equal to the amount receivable.

(b) In respect of liability,-

(1) That person shall be deemed to have spent the amount

equal to the market value of that liability at the time of

disposal for the disposal, and

(2) The incomings derived for that liability pursuant to clause

(1) until that time shall be deemed to be equal to the

amount of expenses.



42. Disposal through installment sale or financial lease: If any person

disposes any property by way of installment sale or lease under a

financial lease to any other person, the following provisions shall

apply:-

(a) The person who has disposed the property shall be deemed to

have received the amount equal to the market value of that

property at the time of disposal for the disposal, and

(b) The person who has acquired the property through disposal shall

be deemed to have incurred cost in a sum equal to clause (a).

Provided that, this provision shall not be applicable where

the provision of Section 45 applies.

43. Transfer of property to husband, wife or former husband, wife: If

any natural person who is a divorcee or lives apart upon having partition

share disposes a property by transferring it to her husband, his wife or

former husband, wife, and that husband, wife or former husband, wife

makes a choice in writing to have this Section enforced, the following

provisions shall apply:

(a) That person shall be deemed to have obtained, for disposal, the

amount equal to the net expenses incurred immediately before the

disposal, and

(b) The person who has acquired the property through transfer shall


44. Transfer of property after death: If the ownership of any property is

disposed through transfer to any other person because of death of any

natural person, the following provisions shall apply:



(a) That person shall be deemed to have obtained, for disposal, the

amount equal to the market value of that property prevailing at

the time of disposal, and

(b) The person who has acquired the property through transfer shall


45. Transfer between associated persons and other non-market

transfers: (1) If any person disposes any property by transferring it to

an associated person or any other person for no consideration, the

following provisions shall apply:-

(a) The person who has disposed the property shall be

deemed to have received the amount equal to the

market value of that property at the time of disposal

for the disposal, and

(b) The person who has acquired the property through

disposal shall be deemed to have incurred cost in a

sum equal to clause (a).

Provided that, this provision shall not be

applicable where the provision of Section 43 and 44

applies.

(2) Notwithstanding anything contained in Sub-section (1), if any

person disposes any business property, non-business taxable property or

property remaining as stock-in-trade by transferring ownership over

such property to any associated person and the matters contained in Sub-

section (6) are fulfilled, the following provisions shall apply:-

(a) That person shall be deemed to have received the

amount equal to the net loss suffered for that

property immediately before the disposal, for the

disposal, and




transfer shall be deemed to have incurred cost in a

sum equal to that mentioned in clause (a).

(3) Notwithstanding anything contained in Sub-section (1), if any

person disposes any depreciable property by transferring ownership over

such property to any associated person by fulfilling the matters

contained in Sub-section (6), the following provisions shall apply:-

(a) That person shall be deemed to have received, for

the disposal, the amount equal to the remaining

value of the group of the descending system

pursuant to Section 4 of Schedule-2 at the time of

disposal, and


transfer shall be deemed to have incurred cost in a

sum equal to that mentioned in clause (a).

(4) If any person disposes any liability by transferring it to an

associated person pursuant to this Section or by transferring it to any

other person without taking any value, the following provisions shall

apply:-

(a) The person shall be deemed to have incurred cost

for the disposal in a sum equal to the market value

or the net income earned for the liability

immediately before the disposal, whichever is

lower, and

(b) The transferee of the liability shall be deemed to

have received an amount equal to that liability in

respect of assumption of the liability.



Provided that, this provision shall not be

applicable where the provisions of Sections 43 and

44 apply.

(5) If any person disposes any liability assumed in earning

income from any of his business by transferring it to an associated

person, by fulfilling the matters mentioned in Sub-section (6), the


(a) The person shall be deemed to have incurred cost

for the disposal in a sum equal to the net income

earned for the liability immediately before the

disposal, and

(b) The associated person shall be deemed to have

received an amount equal to that amount in respect

of assumption of the liability.

(6) For purposes of Sub-sections (2), (3) and (5), the following

matters have to be fulfilled:-

(a) The disposed business property, stock-in-trade or

depreciable property of business shall be the

business property, stock-in-trade or depreciable

property of business of the associated person

immediately after the transfer by the person making

such disposal.

(b) The disposed non-business taxable property, stock-

in-trade or depreciable property of any investment

shall be the business property, non-business taxable

property stock-in-trade or depreciable property of

the associated person immediately after the transfer

by the person making such disposal.



(c) In the case of any liability, the liability has to be

transferred to the associated person for the earning

of income from any business or investment of the

associated person.

(d) The transferor and the associated person shall have

to be residents at the time of transfer, and the

associated person has not to be a person enjoying

tax exemption.

(e) The ownership vested in that property or burden

vested in that liability shall continue to exist Fifty

percent as the case may be.

(f) Both of that person and the associated person have

to make request in writing in order to enforce an

option under Sub-sections (2), (3) or (5), as the case

may be.

46. Involuntary disposal of property or liability with substitution: (1) If

any person, no later than one year of the involuntary disposal of any

property in any mode out of the modes mentioned in Sub-section (1) of

Section 40, acquires ownership over other property of similar type in

lieu of that property and makes request in writing to have this Section

applied, it shall be as follows:-

(a) That person shall be deemed to have received, for

the disposal, an amount equal to the sum of the

following amounts:-

(1) Net expenses for that property immediately

before the disposal, and

(2) If the amount derived from the disposal

exceeds the expenses incurred in acquiring



the substituted property, the amount of such

excess, and

(b) The person shall be deemed to have incurred

expenses in a sum equal to the sum of the following

amounts, in acquiring the substituted property.

(1) Net expenses for the disposed property

immediately before the disposal, and

(2) If the expenses incurred in acquiring the

substituted property exceed the amount

derived from the disposal, the amount of

such excess.

(2) If any person, no later than one year of the involuntary

disposal of any liability in any mode out of the modes mentioned in

Sub-section (2) of Section 40, bears other liability of similar type in lieu

of that liability and makes request in writing to have this Section

applied, it shall be as follows:-

(a) That person shall be deemed to have incurred

expenses, for the disposal, in a sum to be set by

subtracting the amount mentioned in clause (2)

from the amount mentioned in clause (1):

(1) Amount for net incomes for that liability


(2) If the expenses incurred in making that

disposal exceed the amount in assuming the

substituted liability, the amount of such

excess expenses, and



(c) The person shall be deemed to have received a sum

equal to the sum of the following amounts, in

acquiring the substituted liability:

(1) Net incomes for the disposed liability


(2) If the amount derived in assuming the

substituted liability exceeds the expenses

incurred in making the disposal, the amount

of such excess.

(3) The circumstances where involuntary

disposal is created after substitution of one

security of any entity for another security as

a result of a change in the security of the

interest in the entity or restructuring of the

entity shall be as prescribed.

47. Disposal upon amalgamation of property and liability: (1) If, as a

result of acquisition of any property or bearing of any liability by any

person, any other property under ownership of, or any other liability

borne by, that person ceases or is amalgamated and thus disposal takes

places, then the following provisions shall apply:-

(a) Where net expenses were incurred for the

amalgamated property or liability immediately

before disposal, that person:

(1) shall be deemed to have received an amount

equal to the net expenses in respect of the

disposal of the amalgamated property or

liability,



Provided that, such amount shall not

exceed the amount received by that person

for the amalgamated liability.

(2) Shall be deemed to have incurred expenses

in a sum equal to that amount in holding

ownership or bearing liability of the

amalgamated property.

(b) Where net incomes were earned for the

amalgamated liability in respect of the

amalgamated liability, immediately before the

disposal of the liability, that person:

(1) shall be deemed to have incurred expenses in

a sum equal to net incomes for the disposal

of the amalgamated liability,

Provided that, in the case of the

amalgamated property, that amount shall not

exceed the amount spent by that person in

acquiring that property.

(2) shall be deemed to have received an amount

equal to that amount in holding ownership of

or bearing liability of the amalgamated

property.

(2) Without prejudice to the matters contained in Sub-section (1),

that Sub-section shall also apply to the following circumstances:-

(a) If that person carries out an act of acquisition or

sale of any property,

(b) If that person acquires the property leased, and



(c) If the guaranteed liability is transferred by the

transferee.

48. Disposal of property and liability through division: If the rights

related with any property owned by or the burdens related with any

liability borne by any person devolve on any other person also by way

of lease of any property or any part thereof, the following provisions

shall apply:-

(a) Where the rights or burdens are permanent, that first person shall

be deemed to have disposed any part of that property or liability

but not to have acquired any new property or liability, and

(b) Where the rights or burdens are temporary or contingent, that

first person shall be deemed not to have disposed any part of that

property or liability.

Provided that, such person shall be deemed to have

acquired a new property or assumed a new liability, as the case

may be.

49. Disposal through allocation of incomes and expenses: (1) Any person

shall, in the following circumstances, allocate the expenses or incomes

made in acquiring, bearing or disposing any property or liability

between properties and liabilities, on the basis of the market value at the

time of acquisition, bearing or disposal, as the case may be:-

(a) Where one or more properties are acquired or one

or more liabilities assumed at the same time,

(b) Where one or more properties or liabilities are

disposed at the same time.

(2) If any person who holds ownership of any property or bears

any liability disposes any part of that property or liability, the net



expenses or net incomes of that property or liability immediately before

the disposal have to be allocated in the portion of the disposed property

or liability and in the remaining portion, as the case may be, on the basis

of the market value thereof immediately after the disposal.

Chapter –9

Special Provisions on Natural Person

50. Spouse: (1) Both a resident natural person and his/her resident husband

or wife may, by giving a notice in writing, choose to be treated as one

natural person in any specific income year for tax purposes.

(2) The husband or wife out of the spouses who choose the

provision contained in Sub-section (1) in respect of any income year

shall be jointly and severally responsible between each other for the tax

payable by them in that year.

51. Tax adjustment for medical treatment: (1) Any resident natural

person may make a claim for adjustment of tax for medical treatment in

any income year for the approved medical expenditure incurred by

him/herself or through any other person for him/herself.

(2) The tax adjustment amount for medical treatment of a natural

person in any income year shall be computed also by adding any

amount, if any, referred to in Sub-section (4) to the amount to be set by

Fifteen per cent of the approved medical treatment expenditure referred

to in Sub-section (1).


amount of tax adjustment for medical treatment claimed by a natural

person in any income year shall not exceed the prescribed limit.

(4) In the case of any natural person in any income year, the

excess amounts as mentioned in clauses (a) and (b), up to the following



limit, may be carried forward and be included in the amount referred to

in Sub-section (2) in the forthcoming years:-

(a) Where the amount referred to in Sub-section (2)

exceeds the limit referred to in Sub-section (3), the

amount of such excess, and

(b) The amount to the extent that the person referred to

in clause (a) of Section 3 is not allowed to use tax

adjustment for medical treatment because of being

less the amount of tax payable by that person in that

year.

Explanation: For purposes of this Section,

"approved medical treatment expenditure" means

the approved medical treatment expenditure as

prescribed.

Chapter-10

Special Provisions For Entity

52. Principles of taxation applicable in respect of entities: (1) For

purposes of payment of tax, any entity shall be responsible distinctly

from its beneficiaries.

(2) Distributions to be made by an entity shall be as mentioned in

Section 53, and in distribution to be so made, tax shall be imposed on its

beneficiaries pursuant to Section 54.

(3) The amounts derived by and expenses borne by an entity shall

be deemed to have been received or borne by the entity irrespective of

whether or not the entity has derived the same or borne expenses for

other person.



(4) A property under ownership of an entity and the liability

borne by it shall be deemed to be under ownership or burden of the

entity. Such property under ownership and liability borne shall not be

deemed to be under the ownership or burden of any other person.

(5) Foreign income tax paid by the manager, beneficiary of an

entity or the entity, whosoever, for the income of the entity shall be

deemed to have been paid by the entity.

(6) Transactions between any entity and its managers and

beneficiaries shall be recognized subject to Chapter-7 and Section 45.

53. Distribution by entity: (1) The following matters have to be included in

the distribution to be made by an entity:-

(a) Payment made by the entity to any of its

beneficiaries in any capacity, or

(b) Capitalization of profits.

(2) Notwithstanding anything contained in Sub-section (1), any

payment referred to in clause (a) of that Sub-section shall be deemed to

have been distributed only in the following circumstances:-

(a) Where the payment exceed the amount paid by a

beneficiary to the entity in exchange for a

consideration likely to be obtained from the entity,

and

(b) Where the following amounts are not included in

the payment:-

(1) The amounts included in computing the

income of the beneficiary,



(2) The payments from which tax has been

deducted finally except for reason of

distribution.

(3) Only if the distribution of any entity reduces the value of

property or liability of that entity, such distribution shall be deemed to

be a distribution of profits or return of capital.

(4) In any of the following circumstances, a distribution of any entity

shall be deemed to be a distribution of profits, subject to Section 55:-

(a) Where the distribution is of a type referred to in

Sub-section (3) and the amount as per the market

value of the property exceeds the total amount of

capital contribution consisting of the market value

of the liability of the entity at the time of

distribution and of capitalized profits, as well,

(b) Where profits are capitalized.

(5) The distribution referred to in Sub-section (3) shall be deemed

to be a return of capital to the extent of non-distribution of profits.

(6) The distribution of any entity shall be deemed to be a

dividend of that entity to the extent of non-return of capital.

Explanation: For purposes of this Section, "capitalization of profits"

means and includes any capitalization made by issuing bonus share or

similar other interest or increasing the paid up sum of the interest of that

entity or crediting the profits to the premium and capital account of that

entity.

54. Tax in dividend: (1) On the dividend distributed by a resident body, it

shall be as follows:-



(a) Tax shall be imposed on a shareholder of any

company as per the mode of final tax deduction,

and

(b) No tax shall be imposed on other entities.

(2) The dividend distributed by any non-resident person to any

resident beneficiary shall be included in the income of the beneficiary

and tax imposed accordingly.


cases where in distributing a dividend by a resident company to another

resident company, except for a dividend distributed by a resident

company to an organization enjoying tax exemption, the resident

company receiving the dividend controls twenty-five per cent or more

voting right of the resident company distributing the dividend, directly

or indirectly through itself or one or more associated entities, no tax

shall be charged on the dividend distributed to such a resident entity.

(4) Notwithstanding anything contained in Sub-section (3), that

Sub-section shall not be applicable in the following circumstances:-

(a) Dividend distributed to any company because of

ownership of redeemable shares of the company

distributing dividend.

(b) Dividend referred to in Section 58.

(5) The incomes referred to in Chapter-8 receivable for the

interest of a beneficiary of an entity have to include the amount for

capital return made by any entity for that interest.

Provided that, the dividend distributed by the entity need not to

be included.



55. Dissolution of entity: (1) A distribution made in proportion to the

portion of profit earned by and that of capital contributed by any

beneficiary in disposing the interests in the course of dissolution of any

entity shall be deemed to be the payment of partial dividend and partial

capital of that entity, if all of the following conditions are fulfilled:-

(a) Where any distribution has been made by such

entity in respect of cancellation, release or

acceptance of the interest in that entity because of,

inter alia, purchase by the entity of its interest or

dissolution of the entity by following the process of

law in force,

(b) Where, except in cases of full dissolution, the rights

of the beneficiaries in the portion of profits of that

entity have not been computed in proper portion or

could not be computed reasonably, and

(c) Where the beneficiary who gets that distribution is

not an associated person with the entity after the

disposal.

(2) Notwithstanding anything contained in Sub-section (1), that

the provisions contained in that Sub-section and Section 53 shall not be

applicable in cases where any entity purchases the interest of any

beneficiary in the entity through the securities market recognized under

the law in force and make distribution to that beneficiary.

56. Transaction between entity and beneficiary: (1) If a property is

disposed through transfer of ownership over the property in any manner

of distribution between an entity and its beneficiary or in any other

manner subject to Section 45, it shall be as follows:-



(a) The transferor of the property shall be deemed to

have received, from the disposal, an amount equal

to the market value of the property immediately

before the disposal, and

(b) The transferee of the property shall be deemed to

have incurred cost in a sum equal to that mentioned

in clause (a) in acquiring the property.

(2) If any liability is disposed through transfer of the liability

between any entity and its beneficiary subject to Section 45, it shall be

as follows:-

(a) The transferor of the liability shall be deemed to

have incurred cost, in disposing the liability, in a

sum equal to the market value of the liability


(c) The transferee of the liability shall be deemed to

have received an amount equal to that mentioned in

clause (a) in assuming the liability.

(3) If any entity distributes dividends except profits as dividends

to any beneficiary, the amount of such dividends shall be included in

computing the income of the entity.

Provided that, provisions may be made to exclude the matters

contained in this Sub-section in any circumstance as prescribed.

57. Change in control: (1) If the ownership of any entity changes by Fifty

per cent or more as compared to its ownership until before the last three

years, the entity shall be deemed to have disposed the property under its

ownership or the liability borne by it.



(2) If the ownership of an entity is changed as mentioned in Sub-

section (1), the entity shall not be allowed to carry out the following acts

after such change:-

(a) To deduct interest incurred by that entity prior to

the change in ownership and carried forward

pursuant to Sub-section (3) of Section 14,

(b) To deduct the loss suffered by that entity prior to

the change in ownership, pursuant to Section 20,

(c) To carry back a loss suffered after the change in

ownership in any income year before such change,

pursuant to Sub-section (4) of Section 20, Section

59 or 60,

(d) To make adjustment pursuant to Sub-section (4) of

Section 24, in cases where it has been calculated for

any amount or expenses pursuant to clause (a) of

Sub-section (4) of Section 24 prior to the change in

ownership, and correction has been made on that

amount or expenses pursuant to clause (b) of Sub-

section (4) of Section 24 after the change in

ownership,

(e) To make adjustment pursuant to Sub-section (1) of

Section 25, in cases where any amount has been

calculated pursuant to clause (b) of Sub-section (1)

of Section 25 prior to the change in ownership and

the right to receive that amount has been

relinquished or in the event of that being a debt

claim, such person has written off such amount as a

bad debt, after the change in ownership,



(f) To subtract, pursuant to Section 36, the loss

suffered in disposing any property or liability prior

to the change in ownership from the income earned

from the disposal of the property or liability after

the change in ownership,

(g) In cases where premium has been calculated

pursuant to sub-clause (1) of clause (b) of Sub-

section (4) of Section 60, prior to the change in

ownership and such premium has been returned to

the insured after the change in ownership, to claim

for credit accordingly, or

(h) To carry forward in the forthcoming year the tax

paid in respect of a foreign income prior to the

change in ownership, pursuant to Section 71.

(3) In cases where the ownership of any entity changes in any

manner mentioned in Sub-section (1) in any income year, the parts

before and after the change in ownership in that income year shall be

treated as separate income years.

58. Provision restricting reduction of dividend tax: (1) If any entity

distributes dividends as follows, it shall be deemed to have made an

arrangement for reducing dividend tax:-

(a) Where current or expected profits are reserved,

(b) Where any person who acquires an interest of the

entity and the recipient of the interest or his

associated person makes any payment to the present

or previous beneficiary of the entity or his

associated person irrespective of whether or not it is



related to the acquisition of interest and whether or

not it is made at the time of acquisition of interest,

(c) Where the payment is fully or partly reflected in the

profits of the entity, or

(d) Where the entity distributes dividends to the

recipient of interest after the recipient of interest

has acquired interest from the entity and the profits

covers the dividends fully or partly.

(2) In cases where dividends are distributed by any entity under

an arrangement reducing dividend tax made pursuant to Sub-section (1),

the arrangement shall be deemed to be as follows:-

(a) The payment made by the recipient of interest or

his/her associated person shall not be deemed as

payment made by that person but as distribution by

that entity of dividends to the previous or present

beneficiary as referred to in clause (b).

(b) The dividends distributed by that entity to the

recipient of interest shall be deemed as equal to a

sum to be set by subtracting the amount of payment

said to have been made from the dividends as

referred to in clause (a).

Chapter-11

Special Provisions on Banking and Insurance Business

59. Banking business: (1) In computing the income or loss made by any

person carrying on a banking business from that business in any income

year, it shall be separately computed as if the banking business were a

business distinct from any other business carried on by that person.



(2) If any person suffers a loss from the banking business in any

income year, that person may subtract, as prescribed, such loss from the

incomes of the past five income years from that business.

(3) In subtracting the loss pursuant to Sub-section (2), the


(a) It shall not exceed any income earned from that

business in the past income year,

(b) It shall not exceed the total sum of loss,

(c) The amount of loss that could not be deducted for

purposes of Section 20 shall be lessened.

Explanation : For purposes of this Section,

"banking business" means banking transactions

carried out by banks and financial institutions

permitted to carry out banking transactions under

the laws in force.

60. General insurance business : (1) In computing the income or loss made

by any person carrying on a general insurance business from that

business in any income year, it shall be separately computed as if the

insurance business were a business distinct from any other business

carried on by that person.

(2) While computing the income of any person carrying on the

insurance business in any income year, it shall be done as follows:-

(a) In income, in addition to any other amounts

required to be included, the following amounts, as

well, have to be included:-

(1) Amounts for premium of insurance

including premium for reinsurance received www.lawcommission.gov.np83


by that person from that business in that

year, and

(2) Amounts received in that year from

payments referred to in sub-clause (1) of

clause (b) for any contract of reinsurance,

security, guarantee or compensation.

(b) In expenses, in addition to the amounts that can be

deducted, the following amounts, as well, may be

deducted:-

(1) The payments made by that person as an

insurer in operating that business in that

year, and

(2) The premiums included pursuant to sub-

clause (1) of clause (a) in computing the

income earned from that business in that

year or last year and returned to the insured

in that year.

(3) If any person suffers loss from the registered general

insurance business in any income year, that person may subtract such

loss, as prescribed, from the incomes of that business earned in last five

income years.

(4) In subtracting the loss pursuant to Sub-section (3), the


(a) It shall not exceed any income earned from that

business in the past income year,

(b) It shall not exceed the total sum of loss,



(c) The amount of loss that could not be deducted for

purposes of Section 20 shall be lessened.


"registered general insurance business" means an

insurance business registered in Nepal pursuant to

the law in force and carrying on general business

transactions.

61. Investment insurance business: (1) In computing the income or loss

made by any person carrying on an investment insurance business from

that business in any income year, it shall be separately computed as if

the investment insurance business were a business distinct from any

other business carried on by that person.

(2) It shall be as follows In computing the income of any person

carrying on the investment insurance business in any income year, it

shall be as follows:-

(a) Except the following amounts, other amounts that

can be included pursuant to this Act have to be

included:

(1) Amounts reinsurance for premium of

insurance including premium received by

that person in operating that business in that

income year, and

(2) Amounts received in that year from

payments referred to in sub-clause (1) of

clause (b) for any contract of reinsurance,

security, guarantee or compensation.



(b) Except the following amounts, other amounts that

can be deducted pursuant to this Act have to be

deducted:

(1) The payments made by any person as an

insurer in operating that business, and

(2) The premiums returned to the insured

referred to in sub-clause (1) of clause (a).

(3) The amounts referred to in sub-clauses (1) and (2) of clause

(a) of Sub-section (2) and sub-clauses (1) and (2) of clause (b) have to

be included in the incomes and expenses for the property or liability of

that person.

(4) The investment insurance agreement of investment insurance

business of any person shall not be deemed as the property and liability

of that person.

62. Amount received from insurance: (1) For purposes of computing the

income of any person, the provisions contained in section shall apply in

respect of the amount received by that person from insurance.


following provisions shall apply in respect of the profits made from

investment insurance:-

(a) In cases where a resident person makes payment of

such amount, tax shall be imposed on the insured

through final tax deduction, and

(b) In cases where a non-resident person makes

payment of such amount, it shall be computed by

including that amount in the income of the insured.



Explanation: For purposes of this Section, "profits

made from investment insurance" means the excess

sums of payment received by any person for

investment insurance in respect of that insurance

over the premiums paid by that person.

Chapter-12

Special Provisions on Retirement Saving

63. Approval of retirement fund: (1) If a resident person who desires to

hold a retirement fund make an application to the Department for having

the retirement fund, the Department shall give approval as prescribed.

(2) A natural person who is a beneficiary of the retirement fund

may make a claim to have the retirement contribution made to the fund

in any income year deducted from his taxable income.


amount claimed by any person for deduction in any income year

pursuant to that Sub-section shall not exceed the prescribed limit of

retirement contribution.

64. Tax in retirement fund: (1) For purposes of assessing the income of

the retirement fund, the amounts to be included or deducted pursuant to

this Act shall be included or deducted in computing the income.

Provided that, ,-

(a) Contributions made to the fund shall not be the

income of the fund and such contributions shall not

be included in computation.



(b) Retirement payments shall not be the expenses of

the fund and such payments shall not be deducted

in computing the income.

(c) Interest of any beneficiary in the retirement fund

shall not be a liability of the fund.

(2) No tax shall be levied in the income of the retirement fund.

(3) If any retirement fund ceases to remain in a form of such

fund, such fund has to pay tax in a sum to be set, by the rate of tax

applicable to companies, by subtracting the amount referred to in clause

(b) from the amount referred to in clause (a).

(a) All retirement contributions paid to the fund

between the period from the date when the fund got

approval as a retirement fund and the date when the

recognition ceased to exist and all income amounts

treated as taxable incomes in cases where Sub-

section (2) is not applicable,

(b) All retirement payments made by the fund between

the period from the date when the fund got

approval as a retirement fund and the date when the

recognition ceased to exist.

65. Retirement payments : (1) For purposes of computing the income

earned by any natural person from the interest in any approved

retirement fund, the following provisions shall apply:-

(a) Retirement payments made by the fund for the

interest in the fund have to be included in the

income, and



(b) Notwithstanding anything contained in clause (a),

in cases where such payment is made in lump sum,

the payment to be set by subtracting Fifty percent

of the paid amount or five hundred Thousand

Rupees, whichever is higher, from the amount so

paid shall be deemed as the profit made by the

person from the disposal of his non-business

taxable property.

(2) For purposes of computing the profit made by any natural

person from the interest in any retirement fund that has not obtained

approval, the following provisions shall apply:-

(a) Where a resident person has made payment, tax

shall be imposed on the beneficiary in that amount

as withholding of tax finally, and

(b) Where a non-resident person has made payment,

that amount has to be included in computing the

income of the beneficiary.

Explanation: For purposes of this Section, "profit

made from the interest in any retirement fund that

has not obtained approval' means, in cases where

retirement payments made from a retirement fund

which has not obtained approval to a beneficiary

natural person for his interest in the fund exceed the

amounts of retirement contributions paid by that

person to that fund for his interest in the fund, the

amount to the extent of such excess.

66. Expenses and incomes for interest in retirement fund: (1) The

expenses incurred for any property remaining as the interest of any



natural person in any retirement fund have to include the followings

amounts:-

(a) All retirement contributions made by the natural

person in respect of the interest, and

(b) Where tax has been paid from the fund pursuant to

Sub-section (3) of Section 64, the amounts included

in the incomes for that property pursuant to Sub-

section (2) during the period from the date when

the fund got approval as a retirement fund to the

date when the recognition ceased to exist.

Provided that, the above-mentioned amounts

shall not be included in the expenses referred to in

Section 38.

(2) The incomes for any property remaining as an interest of any

person in any approved retirement fund have to include the exemptions

claimed by that person pursuant to Sub-section (2) of Section 63 for the

retirement contributions made in respect of that interest.

Chapter-13

International Tax

67. Source of income, loss, profit and payment: (1) In cases where, in the

source of income earned from any employment, business or investment

of any person, the amounts mentioned in clause in (a) exceed the

amounts mentioned in clause (b), the amounts to the extent of such

excess shall be deemed to have source in Nepal.

(a) The amounts with source in Nepal included in

computing the income,



(b) The amounts with source in Nepal deducted in

computing the income.

(2) In cases where in the loss suffered from any employment,

business or investment of any person, the amounts mentioned in clause

(a) exceed the amounts mentioned in clause (b), the amounts to the

extent of such excess shall be deemed to have source in Nepal.

(a) The amounts with source in Nepal to be deducted

in computing the income of the business or

investment,

(b) The amounts with source in Nepal included in

computing the income.

(3) The amounts to be included in computing the income shall be

deemed to have source in Nepal in the following circumstances:-

(a) The net profits referred to in clause (c) of Sub-

section (2) of Section 7 or clause (b) of Sub-section

(2) of Section 9 to be set by subtracting the loss

suffered from the disposal of the property or

liability with source in Nepal from the profit made

from the disposal of the property or liability with

source in Nepal,

(b) In cases where a property situated in Nepal or a

liability to be borne in Nepal is included, the profits

and amounts to be included in computing the

income as mentioned in clause (d) of Sub-section

(2) of Section 7 or clause (c) of Sub-section (2) of

Section 9,

(c) Received payments with source in Nepal, subject to

clauses (a) and (b).



(4) In cases where a property situated in Nepal or a liability to be

borne in Nepal is included, the source of profit or loss made or suffered

from the disposal of the property or liability shall be deemed to have

source in Nepal.

(5) In cases where the following amounts are included in the

amounts deducted in assessing the income, the source of such amounts

shall be deemed to be in Nepal:-

(a) The amount that can be deducted as cost

expenditure mentioned in Sub-section (1) of

Section 15 in respect of the properties situated in

Nepal,

(b) The expenses referred to in Sub-section (1) of

Section 16 in respect of the properties situated in

Nepal, and the expenses to the extent allowed to be

deducted pursuant to Section 19, and

(c) The payments with source in Nepal, subject to

clauses (a) and (b).

(6) The following payments shall be deemed to have source in

Nepal:-

(a) Dividends paid by a resident entity,

(b) Interest paid by a resident person,

(c) Payment for natural resources made in respect of

the natural resource derived from the land situated

in Nepal or calculated with reference to such

source,

(d) Rent paid for the use of any property situated in

Nepal,www.lawcommission.gov.np92


(e) Royalty received by any person for having allowed

any one to use any property situated in Nepal or

accepting the right to use the property or the

restriction on the use of such property,

(f) Amount for the general insurance paid by any

person in respect of insurance against risks in Nepal

and premium paid to that person for general

insurance,

(g) Payments received by any person as follows by

operating inland, sea or air transport or charter

service business in Nepal except as a result of

transshipment:

(1) The carriage of departing passengers, or

(2) The shipment of mail, livestock or other

direct movable property.

(h) Payments received by a person who carries a

business of dispatching information or news

through means of communication such as wire,

radio, optical fiber or satellite in respect of dispatch

of news or information through networks

established in Nepal, irrespective of whether or not

such news or information is originated in Nepal,

(i) Payments in the following circumstances inclusive

of service charges of the kinds not mentioned in

clauses (g) or (h) for doing employment or

rendering service or accepting restriction in those

acts:



(1) Where the acts are carried out in Nepal

irrespective of the place of payment, or

(2) Where Government of Nepal is to make

payment irrespective of the place of such

acts.

(j) Annuities, amount for investment insurance and

retirement pension paid by a resident person, which

does not fall under clause (i), and any premium or

other payment paid to the resident person in order

to ensure such amounts,

(k) Gifts received in respect of a business or

investment operated from the property situated in

Nepal, and

(l) The following payments except those mentioned in

clauses (a), (b), (c), (d), (e), (f), (g), (h), (i), (j) and

(k), above:-

(1) Payments made in respect of disposal of the

property situated in Nepal or in respect of

acquiring liability to be borne in Nepal, or

(2) Payments made in respect of activities

carried out in Nepal.

(7) Any income, loss, amount, profit or payment except the one

which is deemed to have source in Nepal as mentioned in the above-

mentioned Sub-sections, and the references to Nepal given in this Act

shall be applicable as if they were used in the case of any particular

foreign country for purposes of ascertaining as to which country such

income, loss, amount, profit or payment has source in.




(a) "Property situated in Nepal" means the land or buildings

situated in Nepal and the property other than land or

building of a resident person situated in any foreign

country or if the person is associated with a controlled

foreign entity pursuant to Section 69, inclusive his interest

in that entity.

(b) "Liability to be borne in Nepal" means the liability of a

resident person.

68. Foreign permanent establishments: (1) Notwithstanding anything

contained in Section 3, any foreign permanent establishment of a non-

resident person situated in Nepal shall be liable to pay tax payable on

the income of such establishment, subject to other provisions of this Act.

(2) The income of a person having ownership of a foreign

permanent establishment shall be separated from the income of that

establishment, pursuant to Section 69.

(3) Tax shall be imposed on the permanent establishment referred

to in clause (b) of Section 3 in the income sent abroad by the foreign

permanent establishment of a non-resident person situated in Nepal.

(4) The income sent abroad in any income year by the foreign

permanent establishment of a non-resident person situated in Nepal shall

be equal to the amount of dividends distributed by that foreign

permanent establishment in that year.

69. Controlled foreign entities: (1) If any entity distributes dividends of the

associated income earned in any income year as a controlled foreign

entity at the end of the income year, it shall be deemed to have

distributed dividends on proportion to its beneficiaries, as follows:-



(a) As per the rights of the beneficiaries to the income

in distributing dividends, or

(b) If the rights are not certain in a reasonable manner,

as per the method which the Department thinks

appropriate according to the circumstance.

(2) Tax shall not be levied on the dividends distributed by an

entity as a controlled foreign entity at the end of any income year except

those distributed pursuant to Sub-section (1).

(3) The following shall be deemed to have occurred in respect of

the dividends distributed by a controlled foreign entity pursuant to Sub-

section (1) to the beneficiaries associated with that entity at the time of

distribution of dividends:-

(a) Having the characteristic equivalent to the type and

source of the associate income of that entity, and

(b) Having distributed proportionately out of each type

and source the associate income of that entity.

(4) Any tax paid by any controlled foreign entity including that

deemed to be paid pursuant to Sub-section (5) or Sub-section (5) of

Section 52 in respect of the amounts deemed to be distributed pursuant

to Sub-section (3) has to be set aside for the beneficiary associated with

that entity.

(5) The tax set aside pursuant to Sub-section (4) at the time of

allocation shall be deemed to have been paid by the beneficiary, and the

beneficiary may get facility of tax adjustment for such tax, as provided

for in Section 71.

(6) The amount to be deemed as distributed to the beneficiary

pursuant to Sub-section (1) at the time of distribution has to be included



in the expenses for any property or liability of the recipient beneficiary

in the entity making such distribution.

(7) The dividends distributed to the beneficiary enjoying tax

exemption pursuant to Sub-section (2) at the time of distribution has to

be included in the income for any property or liability of the recipient

beneficiary as an interest in the entity making such distribution.

(8) For purposes of this Act, the foreign income tax paid or

foreign income tax deemed as paid by any controlled foreign entity

pursuant to Sub-section (5) or Sub-section (5) of Section 52 shall be

deemed as tax amount paid by that entity or deemed to be paid by that

entity pursuant to this Act.


(a) "Associated income" means, in computing taxable income

of any controlled foreign entity in any income year, a

taxable income computed as if that entity were a resident

entity.

(b) "Controlled foreign entity" means any non-resident entity

in which any resident person has interest directly or

indirectly through one or more interposed non-resident

entities in any income year; and where that person is

associated with that entity or where any person deemed to

be associated with and any other resident persons not

exceeding four persons are associated with that entity, it

includes such entity, as well.

70. Tax chargeable on non-resident person providing water

traveling/rafting, air transport or telecommunications service in

Nepal: (1) The taxable income of any non-resident person who operates

water traveling, charter service or air transport in any income year shall



consist of the amounts derived from the following acts except the

amounts derived from transshipment in that year:-

(a) Carriage of passengers departing from Nepal, or

(b) Carriage of the mail, animals or goods dispatched

from Nepal.

(2) The taxable income of any non-resident person who carries on

a business of cable, radio, optical fiber or satellite communication in any

income year shall consist of the amounts derived from the dispatch of

news or information through any device established in Nepal, whether

originated in Nepal or not.

(3) Tax shall be levied on the amounts to be included in the

taxable income of any non-resident person pursuant to Sub-section (1)

or (2), at the rate specified in Sub-section (7) of Section 2 of Schedule-

1.

Provided that, -

(a) Those amounts need not to be computed in

computing the tax payable in respect of any due

taxable income of that person,

(b) The expenses related with computation of those

amounts shall not be allowed to be deducted in

computing that due taxable income, and

(c) That person shall not be entitled to any facility of

tax adjustment from the amount of tax payable by

that person.

Explanation: For purposes of this Section, "non-

resident person" means a resident entity within the



group of associated entities with head offices

outside Nepal.

71. Foreign tax adjustment: (1) Any resident person may claim for

adjustment of tax for the foreign income tax paid by that person in any

income year to the extent of the tax paid for assessable foreign income

of that person in that year.

(2) In computing the foreign tax adjustment claimed pursuant to

Sub-section (1), it shall be done as follows:-

(a) Separate computation has to be done for assessable

foreign income having source in each country, and

(b) Foreign tax adjustment claim shall not be made, in

respect of the assessable foreign income, at the rate

of tax higher than the average rate of tax of Nepal

payable by that person in that year in respect of

each computation.

(3) Any foreign income tax paid in respect of the assessable

foreign income of any year who is not entitled to foreign tax adjustment

facility pursuant to Sub-section (1) by virtue of the limit provided for in

clause (b) of Sub-section (2) may be dealt with as follows:-

(a) It may be carried forward in the coming year, and

(b) It shall be deemed to be paid in respect of the

assessable foreign income in the future income year

of the person having source in the country where

such foreign income has been earned.


person may give up a claim for foreign tax adjustment to which he is



entitled in any income year and also claim for credit for foreign income

tax for which such adjustment facility is available in that year.


(a) "Assessable foreign income" means the following

income to be included in the assessable income

earned by any resident person in any income year

from any employment, business or investment:-

(1) Income earned from a foreign source, or

(2) Income of a non-resident person deemed as

distributed to that resident person under

Section 69 irrespective of the source.

(b) "Average rate of tax of Nepal" means the rate of tax

of Nepal payable by the person referred to in clause

(a) of Section 3 in any income year of the taxable

income of that person in that year prior to

adjustment of any foreign tax of that person in that

year.



Chapter –14

Tax Administration and Authentic Documents

72. Department: (1) The Department shall be responsible for the

implementation and administration of this Act.

(2) Government of Nepal may, by a notification in the Nepal

Gazette, establish Inland Revenue Offices under the Department and

prescribe their working areas, in order to render assistance to the

Department in fulfilling the responsibility of the Department mentioned

in Sub-section (1). The offices of which working areas have been so

specified shall be deemed as organs of the Department.

(3) The Department may have the officers and other employees

as follows:-

(a) Director General,

(b) Deputy Director General, Chief Tax Administrator,

Director, Chief Tax Officer, Tax Officer and other

officer in the required number, and

(c) Other employees.

(4) The Director General may carry out the following functions,

subject to the direction given by Government of Nepal:-

(a) To exercise any of the powers conferred on the

Department pursuant to this Act,

(b) To so delegate the powers referred to in clause (a)

as to be exercisable by any other officer subject to

Sub-section (5) and (6),



(c) To so specify that all or any of the powers referred

to in clause (a), except the power to issue public

circular pursuant to Section 75, to specify the

document referred to in Section 77, to hold pending

any reviewable decision or otherwise affect it

pursuant to Sub-section (5) of Section 115, to

accept or reject, fully or partly, the matters

contained in an application made by any person

pursuant to Sub-section (7) of Section 115, to make

addition by adding offence pursuant to Section 129

or to grant authority to any officer pursuant to

Section 82, to be exercisable by any officer

employee of the civil Service.

(5) Deputy Director General, Chief Tax Administrator, Director,

Chief Tax Officer and Tax Officer who acts as the Chief of Office may

carry out the following functions, subject to the direction given by

Government of Nepal or the Director General:-

(a) To exercise the powers conferred on the

Department pursuant to this Act, other than the

power to issue public circular pursuant to Section

75, to specify the document referred to in Section

77, to hold pending any reviewable decision or

otherwise affect it pursuant to Sub-section (5) of

Section 115, to accept or reject, fully or partly, the

matters contained in an application made by any

person pursuant to Sub-section (7) of Section 115,

to make addition by adding offence pursuant to

Section 129, and



(b) To so delegate such powers as to be exercisable by

any other officer of the Department subject to Sub-

section (6).

(6) Any other officer of the department except the Director

General, Deputy Director General, Chief Tax Administrator, Director,

Chief Tax Officer or Tax Officer who acts as the Chief of Office may

carry out the following functions:-

(a) To exercise any powers delegated to that officer out

of the powers conferred on the department, except

the following powers:

(1) To issue public circular pursuant to Section

75, to specify the document referred to in

Section 77, to hold pending any reviewable

decision or otherwise affect it pursuant to

Sub-section (5) of Section 115, to accept or

reject, fully or partly, the matters contained

in an application made by any person


to make addition by adding offence pursuant

to Section 129, or

(2) To grant authorization to any officer

pursuant to Section 82 or issue a notice

pursuant to Section 109.

(b) He/she shall not be entitled to re-delegate any

power delegated to him/her.

73. International agreements: (1) In cases where any income of any

person is taxable pursuant to this Act or the laws in force and the same

income is also taxable in a foreign country, Government of Nepal may



conclude an international agreement with the foreign country for the

avoidance of double taxation.

(2) This Sub-section shall be applicable in cases where, pursuant

to any international agreement concluded with Nepal, the competent

authority of the other country requests the Department to collect in

Nepal the amount payable by any person who is in arrears of that

amount, pursuant to the taxation law of that other country.

(3) In cases where Sub-section (2) is applicable, the Department

may, for the purpose of sending that amount to that competent authority,

send a notice in writing to the person who is in arrears of tax and require

him to pay such amount to the Department within the date mentioned in

that notice.

(4) This Sub-section shall be applicable in cases where any

international agreement contains a provision under which Nepal has to

exempt income or payment or has to apply the reduced tax rate to

income or payment.

(5) In cases where Sub-section (4) is applicable, any of the

following entity shall not be entitled to enjoy tax exemption or tax

deduction facility:-

(a) An entity who is considered as a resident of the

other party of the agreement for purposes of the

agreement, and

(b) Where Fifty percent or more portion of the vested

ownership of that entity is owned by natural

persons or by the entities in which any natural

person has no interest and, for purposes of the

agreement, the persons or entities are residents of



both Nepal and of the other country party to the

agreement.


"international agreement' means any treaty or

agreement containing the following provisions,

concluded with any foreign government and

applicable to Nepal:

(a) To avoid double taxation and prevent fiscal

evasion, or

(b) To render reciprocal administrative

assistance in the implementation of tax

liability.

74. Taxpayer's rights: (1) Any taxpayer shall not be entitled to exercise

any of the rights mentioned in Sub-section (2) without fulfilling the

duties required to be fulfilled pursuant to this Act.

(2) In the context of paying tax pursuant to this Act, a taxpayer

shall have the following rights:-

(a) The right to be treated with honour,

(b) The right to receive information on tax related

matters pursuant to the laws in force,

(c) The right to have an opportunity to furnish proofs

in defense on tax related matters,

(d) The right to appoint a legal practitioner or auditor

for defense, and



(e) The right to have tax related secret matters

inviolable except as otherwise mentioned in this

Act.


"taxpayer" means a person on whom tax is imposed

and collected as mentioned in Section 3.

75. Public circular: (1) In order to bring about uniformity in the

implementation of this Act and simplify tax administration and give

guidelines to the officers of the Department as well as the persons

affected by this Act, the Department may issue written public circulars,

accompanied by explanations, on the provisions made in this Act.

(2) The Department shall make available the circular issued

pursuant to Sub-section (1) in the Department or in any other places as

per necessity or through any other means.

(3) The Department shall be compelled to take action according

to the circular issued pursuant to Sub-section (1) unless and until such

circular is revoked.

76. Advance ruling: (1) If any person makes an application in writing to

the Department for the removal of any confusion as to the application of

this Act to any arrangement proposed or accepted by such person, the

Department may issue its version by an advance ruling as prescribed, by

notifying the person in writing.


Department shall not be entitled to issue an advance ruling referred to in

Sub-section (1) on any matter of confusion occurred in the

implementation of this Act in cases where such matter is sub judice in

the court or has already been decided by the court.



(3) In cases where any person acts as follows prior to the

issuance of an advance ruling pursuant to Sub-section (1), the

Department shall be compelled to implement this Act as per that ruling

until the ruling issued to that person remains valid:-

(a) If the full and actual statements of the matter

related to that ruling are presented to the

Department, and

(b) If the arrangement corresponds to the point

mentioned in the application made by that person

for the ruling.

(4) In cases where the public circular issued pursuant to Section

75 and the advance ruling issued pursuant to Sub-section (1) are

mutually contradictory, priority shall be given to the matters mentioned

in the advance ruling in the case of the person to whom such ruling has

been issued.

(5) Prior to the issuance of the advance ruling pursuant to Sub-

section (1), the Department may give an opportunity to the applicant to

furnish further statements, if any, in person or through his

representative.

77. Format of documents: (1) The Department may, from time to time, so

specify the mode of submission and formats of necessary documents,

statements including income returns, tax deduction statements and

formats of records that are required under this Act and the rules framed

under this Act, the notices, information and details required for the

effective implementation of this Act are incorporated.

(2) The Department shall make available the formats referred to

in Sub-section (1) in the Department and in any other places specified

by the Department and through any other means.



78. Permanent account number: (1) The Department shall issue an

identity number called as permanent account number to any person for

purposes of identifying that person, subject to this Act.

(2) The Department may order any person to mention his/her

permanent account number in any income return, statement, version or

other document to be used for purposes of this Act.

(3) Government of Nepal may specify the circumstances where

any person has to show or mention his/her permanent account number.

79. Service of documents: (1) Any document required to be given or

delivered to any person pursuant to this Act shall be deemed to have

been given or delivered to that person in the following circumstances:-

(a) Where it is sent to the fax number or email address

of that person,

(b) Where it is delivered by hand to whom it has to be

delivered or to the manager of an entity, in the case

of the entity, or

(c) Where it is sent by a registered post to his resident,

office, business or other address to the extent

known.

(2) Any document so signed, encrypted or encoded through

computer technology or written in it as indicating the name and

designation of the competent authority of the Department and issued,

served or given pursuant to this Act shall be deemed to have met

requirements.

80. Defective documents: (1) Any document issued under this Act shall not

be deemed defective in the following circumstances:



(a) Where it is consistent with this Act substantially,

and

(b) Where the person who is addressed in a document

is normally indicated in the document.

(2) In cases where any documents issued by the Department

pursuant to this Act contains any error and the error does not give rise to

any dispute as to the interpretation of this Act or the fact of any specific

person, the Department may make amendment in the document for

purposes of rectifying such error.

Chapter-15

Records and Information collection

81. To maintain records or documents: (1) Each person who is liable to

pay tax pursuant to this Act has to maintain in Nepal the following

necessary documents, in addition to the documents required to be

maintained in the format or type as prescribed by the Department or to

be certified or authenticated by audit or in other manner:

(a) Necessary information and documents supporting

the income returns or any other documents required

to be submitted to the Department pursuant to this

Act,

(b) Documents assisting to assess the tax payable by

him,

(c) Documents supporting the deduction of expenses.

(2) Except as otherwise specified by the Department by issuing a

notice in writing, the documents referred to in this Section have to be



safely retained for at least Five years from the date of expiration of the

concerned income year.

(3) In cases where any document referred to in Sub-section (1) is

not in the Nepali or English language, the Department may, by issuing a

notice in writing, require the concerned person to submit the translated

version of such document in the Nepali language done, at such person's

own cost, by a recognized translator under the law in force.

82. Powers of Department to obtain information: (1) The officer of the

Department may do the followings in order to implement this Act:

(a) To have full or unhindered access to any premises,

places, documents or properties situated in Nepal,

subject to the laws in force,

(b) To obtain any portion of or duplicate copy of the

document including an electronic copy of the

documents to which there is an access pursuant to

clause (a),

(c) In cases where the concerned officer thinks that the

document to which there is an access pursuant to

clause (a) is an evidence that could be necessary to

assess tax liability of any person pursuant to this

Act, to take such document in his custody, and

(d) In cases where any person having access to any

document who is requested to provide a duplicate

copy of such document does not provide it, and the

officer thinks that such document is kept in any

property in any form, to take such property in own

custody in order to have access to such document.



(2) No officer shall be entitled to exercise the powers referred to

in Sub-section (1) without having authority in writing from the

Department. In cases where, in entering to any premises or places in

exercise by any officer of the powers referred to in Sub-section (1), the

possessor of such premises or places or the person having access to any

concerned document or property requests to show the authority of the

Department, such officer has to show such authority to them.

(3) In cases where any officer of the Department who enters to

any premises or places in exercise of the powers referred to in Sub-

section (1) so requests, the possessor of such premises or places or the

person having access to any concerned document or property has to

provide all proper facilities and assistance for the effective use of the

powers.

(4) The Department may hold in its custody the document or

property taken in its custody pursuant to clause (c) or (d) of Sub-section

(1) until the following time:

(a) In the case of any document taken in custody

pursuant to clause (c) of Sub-section (1) until the

time the document is required to assess tax liability

of any person or for any other action pursuant to this

Act, and

(b) In the case of any property taken in custody pursuant

to clause (d) of Sub-section (1), until the time when

access to the document in question is gained and it is

taken in custody.

(5) The person whose document is taken in custody pursuant to

Sub-section (4) may inspect such document and may obtain a copy of or

copy down a portion of such document at his/her own cost within office

hours and under supervision as prescribed by the Department.



(6) Notwithstanding any provision made on privilege or public

interest in respect of having access to the documents required for the

implementation of this Act, the provisions contained in this Section shall

apply in that respect.

Explanation: For purposes of this Section, "possessor" means, in

respect of any premise or place, a person having ownership of, manager

of the premise or place or any other person remaining there.

83. Power to obtain information by notice: (1) The Department may, by

giving a notice in writing, order any person with or without liability to

pay tax pursuant to this Act to do as follows:-

(a) To submit any information specified in the notice

within the time specified in the notice, also by

preparing any document,

(b) To be present at the Department in the place and

time specified in the notice before the officer of the

Department for inspection on the tax related matters

of that person or any other person,

(c) To submit, for purposes of inspection, any

document mentioned in the notice that is under his

control at the time when that person is examined

pursuant to clause (b).

(2) Any person who is to be examined pursuant to clause (b) of

Sub-section (1) shall have the right to have legal or other representation

during such examination.

(3) Notwithstanding any provision made on any privilege or on

public interest in respect of having access to the documents required for

the implementation of this Act, the provisions contained in this Section

shall apply in that respect.



84. Governmental secrecy: (1) Any officer and other employee of the

Department shall maintain secrecy of all documents and information

that come to his custody or knowledge in the course of carrying out his

duty pursuant to this Act.


officer of the Department may disclose, as follows, the document or

information referred to in Sub-section (1) to the following persons:-

(a) To the extent that it is necessary to carry out the

duty of that officer pursuant to this Act,

(b) In cases where is so ordered by any court or

tribunal in respect of administrative review or

action pursuant to this Act,

(c) Before the Minister for Finance,

(d) In cases where it is necessary to disclose for

purposes of any other financial law,

(e) In cases where it is necessary for any person in the

service of Government of Nepal for any acts

relating to revenue or statistics, before such a

person,

(f) In cases where it is necessary in the course of

carrying out the duty, before the Auditor General or

any person authorized by the Auditor General, or

(g) Before the competent authority of the government

of any country with which Government of Nepal

has concluded an international agreement, to the

extent as provided for in such agreement in that

respect.



(3) Any person, court, tribunal, body or official who obtains any

document or information pursuant to Sub-section (2) shall keep secret

such document or information except to the minimum extent required.

Chapter-16

Payment of Tax

85. Time, place and mode of payment of tax: (1) Tax required to be paid

under this Act has to be paid in the place and mode as prescribed.

(2) Tax required to be paid under this Act has to be paid in the

following time, subject to Sub-section (1):-

(a) In the case of one who has to pay by withholding

advance tax, in the time mentioned Sub-section (4)

of Section 90,

(b) In the case of one who has to pay tax in

installments, in the time mentioned in Sub-section

(1) of Section 94,

(c) In the case of one who has to pay the assessed tax-

(1) On the date when the income return is to be

submitted in respect of assessment of tax

referred to in Section 99,

(2) Within the time limit as specified in the tax

assessment notice delivered pursuant to

Section 102 in respect of tax assessed


(3) Within the time limit as specified in the tax

assessment notice delivered pursuant to

Section 102 in respect of amended tax



assessment made pursuant to Sub-section (2)

of Section 99,

(d) In respect of the amounts required to be paid to the

Department as per any notice issued pursuant to

Sub-section (8) of Section 104, Sub-section (1) of

Section 109, or Sub-section (1) of Section 110, on

the date mentioned in the notice,

(e) In respect of a liability fixed upon failure of any

entity to pay tax pursuant to Sub-section (2) of

Section 107, at the same time when the entity has to

pay tax,

(f) In respect of the amounts required pursuant to Sub-

section (3) or (4) of Section 108, within seven days

of the date on which the amounts are adjusted by

auction sale gradually or on which the amounts

cannot be so adjusted, and

(g) In respect of the fees and interest assessed pursuant

to Section 122, on the date as mentioned in the

assessment notice.

(3) The date on which tax has to be paid shall not be affected in

the following circumstances:-

(a) An action taken by the Department pursuant to

Chapter-20 to recover tax, or

(b) Other action has commenced, pursuant to this Act.

86. Evidence of payable tax: The certificate signed by the officer of the

Department, indicating the name, address of any person and the amount

of tax required to be paid by that person shall be an ample evidence for



the amount of tax required to be paid by that person, in the following

actions:-

(a) Any action taken by the Department pursuant to Chapter-20 to

recover tax, or

(b) Any action on any offense pursuant to Chapter-23.

Chapter-17

Withholding on Payment

87. Withholding of tax by employer: (1) In making payment which has

source in Nepal and is to be included in computing the income derived

by any employee or worker, each resident employer shall deduct

(withhold) tax at the rate referred to in Schedule-1.

(2) The liability of an employer required to withhold tax pursuant

to Sub-section (1) shall not decrease or end by virtue of the followings:-

(a) In cases where the employer has the right or duty to

deduct or hold up or subtract any other amount

from the said payment, or

(b) In cases where the income earned by the employee

or worker from employment cannot be subtracted

pursuant to other laws in force.

88. Withholding of tax in making payment for investment return and

service charge: (1) In making payment by a resident person for interest,

natural resource, rent, royalty, service charge having source in Nepal,

and if the person is an approved retirement fund, in making payment of

amount of any retirement payment, the person shall withhold tax at the

rate of Fifteen percent of the total amount of payment.



Provided that, tax shall be withheld from provident fund and

gratuity paid by the approved retirement fund, only at the rate of six

percent.

(2) In making payment by a resident person for dividend, profit

made from investment insurance having source in Nepal or profit made

from unapproved retirement fund, the person shall withhold tax at the

rate of ten percent of the total amount of payment.


making payment of interest or of an amount in the form of interest as

follows to any natural person for the deposit, a bank or financial

institution shall withhold tax at the rate of Six percent of the total

amount of payment:-

(a) Which has source in Nepal, and

(b) Which is not related with the operation of business.

(4) Notwithstanding anything contained in Sub-sections (1), (2)

and (3), this Section shall not apply to the following payment:-

(a) Payment related to the operation of a business

carried on by a natural person or any other payment

except for the house rent,

(b) Interest paid to a resident bank or other resident

financial institution, or

(c) Payment enjoying tax exemption or payment liable

to tax withholding pursuant to Section 87.

89. Tax withholding in making payment of contraction or contract: (1)

In making payment of a sum exceeding Fifty Thousand Rupees for

payment of general insurance premium or contraction or contract, a



resident person shall withhold tax at the rate of One and half percent of

the total amount of payment.

(2) The amount referred to in Sub-section (1) shall be fixed also

by adding any other payments, if any, made by such person or his/her

associated person under the same contract to the person or his/her

associated person entitled to payment under that contract in the past Ten

days.

(3) Notwithstanding anything contained in Sub-section (1), tax

shall be withheld as follows from payment made by any resident person

to any non-resident person under any contraction or contract:-

(a) Where the Department has given that resident

person a notice in writing, at the rate specified in

the notice, or

(b) As referred to in Sub-section (1) in any other

circumstances.

(4) Notwithstanding anything contained in Sub-section (1), this

Section shall not apply to the following payments:-

(a) Payment made by natural persons excepts the

payments made in the course of operation of any

business, or

(b) Payments enjoying tax exemption or payments

liable to tax withholding pursuant to Section 87 or

88.

90. Statement and payment of tax withheld: (1) Each person who has to

withhold tax has to submit to the Department a statement setting out the

following matters in such mode and format as specified by the

Department within Fifteen days of expiration of each month:



(a) Payment subject to tax withholding made by the

person withholding tax to the person subject to tax

withholding pursuant to Sections 87, 88 or 89 in

that month,

(b) Name, address of the person subject to tax

withholding and the permanent account number in

the case of one who has permanent account

number,

(c) Amount of tax withheld in making each payment

except that mentioned in Sub-section (3), and

(d) Any other information as specified by the

Department.

(2) The person withholding tax shall pay to the Department the

amount of tax withheld or deemed to be withheld pursuant to Sub-

section (3), along with the statement referred to in Sub-section (1),

within the time-limit referred to in Sub-section (1).

(3) Even though the person liable to withhold tax has not

withheld tax pursuant to Section 87, 88 or 89, the tax shall be deemed to

withheld at the time when it has to be withheld.

(4) The person withholding tax shall pay the amount of tax

withheld pursuant to Section 87, 88 or 89 or deemed to be withheld

pursuant to Sub-section (3); and in cases where Sub-section (5) is

applicable, the person subject to tax withholding shall pay the tax within

Fifteen days after the period referred to in Sub-section (1).

(5) In cases where the person withholding tax does not withhold

or pay tax as follows, both the person subject to tax withholding and the

person withholding tax shall be jointly and severally liable to pay the

amount of tax to the Department:



(a) In cases where the person withholding tax does not

withhold tax from any payment pursuant to

Sections 87, 88 or 89, and

(b) In cases where the person withholding tax does not

pay to the Department the amount of tax deemed to

be withheld pursuant to Sub-section (3) within the

date on which tax has to be paid pursuant to Sub-

section (4).

(6) In cases where the person withholding tax withholds tax and

pays it to the Department pursuant to Sections 87, 88 or 89 and the

person subject to tax withholding makes any claim as to that payment

subject to tax withholding, that amount shall be treated as if it were paid

to the person subject to tax withholding.

(7) In cases where the person withholding tax pays to the

Department the amount of tax not withheld pursuant to Sections 87, 88

or 89, he may recover the amount equal to the amount of tax so paid

from the person subject to tax withholding.

91. Tax withholding certificate: (1) The person withholding tax shall

provide the tax withholding certificate, as follows, to the person subject

to tax withholding at the time as specified in Sub-section (2):

(a) Having been certified in accordance with the

manner, if any, as prescribed by the Department,

(b) Setting out the amount of tax withheld pursuant to

Sections 87, 88 or 89 and the paid amounts.

(2) The tax withholding certificate setting out the period of tax

withholding has to be provided within Fifteen days from the date of

expiration of the month in which tax is withheld.




cases where tax is withheld pursuant to Section 87, the tax withholding

certificate has to be provided as follows:-

(a) The certificate shall be valid only for the period

when the employee continues to serve in that

income year.

(b) The certificate has to be provided within Thirty

days from the expiration of that year or in cases

where the employee leaves employment in the

person withholding the tax in that year, it has to be

provided within thirty days from the date of his

leaving employment.

92. Payment from which tax is withheld finally: (1) The following

payments shall be treated as payments from which tax is withheld

finally:-

(a) Dividend paid by a resident company,

(b) Rent paid for the land or building and fixtures and

equipment appurtenant thereto having source in

Nepal to other natural person except one who is

carrying on business,

(c) Profit paid by a resident person for investment

insurance,

(d) Profit paid by a resident person for the interest of

an unapproved retirement fund,

(e) Interest paid by a bank or financial institution as

mentioned in Sub-section (3) of Section 88, and



(f) Payment subject to tax withholding made to a non-

resident person pursuant to Sections 87, 88 or 89.

(2) In cases where the person withholding tax or the person

subject to tax withholding pays to the Department the amount of tax

withheld from the payment from which tax is withheld finally pursuant

to Sections 87, 88 or 89 or the amount of tax deemed to have been

withheld pursuant to Sub-section (3) of Section 90, the person referred

to in clause (c) of Section 3 shall be deemed to have fulfilled the tax

liability.

93. Adjustment facility and inclusion of tax not to be withheld finally:

(1) In cases where any tax is withheld from any payment for purposes of

computing the amount of such payment, such tax-withheld amount shall

be treated as a portion of that payment.

(2) In cases where any tax is withheld from any payment except

the payment from which tax is withheld finally, the person subject to tax

withholding shall be deemed to have paid the amount of tax as follows:-

(a) The amount of tax withheld from payment pursuant

to Sections 87, 88 or 89,

(b) In cases where the person withholding tax or the

person subject to tax withholding pays to the

Department the amount of tax referred to in Sub-

section (3) of Section 90 or the amount of tax

deemed to have been withheld from payment, such

amount.

(3) The person subject to tax withholding may make a claim for

adjustment of the amount referred to in Sub-section (2) only to the

amount of tax payable in the income year in which that payment is

made.



Chapter-18

Installment

94. Payment of tax in installment: (1) A person who has or will have

assessable income in any income year from any business or investment

has to pay tax in three installments as follows:

Explanation: For purposes of this Sub-section,-

(a) "Estimated tax" means the estimated tax in installment

computed by any person liable to pay tax in installment

pursuant to Section 95 at the time when the installment tax

is to be paid in any year.

(b) "Already paid tax" means the following total sum:-

(1) The amount of tax paid in that income year by a

prior installment before the date on which the

installment in question is to be paid,

(2) The amount of tax deducted from the payments to

be included in computing the income of any person

in any income year pursuant to Chapter-17 before


Date on which payment has to

be made

Amount to be paid

By the end of Poush (mid

January)

40% of the estimated tax which exceeds

the already paid tax

By the end of Chaitra (mid

April)

70% of the estimated tax which exceeds

the already paid tax

By the end of Ashad (mid

July)

100% of the estimated tax which

exceeds the already paid tax

123


the date on which the installment in question is to

be paid in that year,

(3) In cases where the agent withholding tax or the

person subject to tax withholding pays to the

Department the amount of tax deemed to be

withheld from the payment referred to in clause (2)

pursuant to Sub-section (3) of Section 90 in that

year before the date on which the installment is to

be paid, such amount of tax, and

(4) The amount of tax adjustment for medical treatment

expenses which that person may claim pursuant to

Section 51 in respect of the accepted medical

treatment expenses incurred by that person before

the date on which the installment is to be paid.


cases where the amount of installment to be paid pursuant to that Sub-

section is less than Two Thousand Rupees, amount of such installment

need not to be paid.

(3) The person paying installment shall be allowed to deduct the

amount of tax paid by way of installment in any year pursuant to this

Section for the tax chargeable in that year.

95. Return of estimated tax to be paid: (1) Every person who has to pay

installment in any income year has to submit to the Department a return,

in such format and manner as may be prescribed, setting out the

estimates of the following amounts of that person for that year within

the date on which the first installment of tax is to be paid in that year

pursuant to Section 94:-



(a) Assessable income that could be earned by that

person from each source of employment, business

and investment in that year and source of such

income,

(b) Taxable income of that person that could be earned

in that year and the amount of tax to be paid by the

person referred to in clause (a) of Section 3, which

is computed pursuant to Section 4 without

subtracting the amount of tax adjustment for

medical treatment expenses,

(c) In respect of a non-resident person's foreign

permanent establishment situated in Nepal, the

amount of income sent abroad by such foreign

establishment in that year and the amount of tax to

be paid by the person referred to in clause (b) of

Section 3, which has been computed in that income

pursuant to Sub-section (5) of Section 4, and

(d) Any other details specified by the Department.

(2) The sum total of the amount of tax mentioned in clauses (b)

and (c) shall be the estimated tax payable by the person referred to in

Sub-section (1) in that income year.

(3) In computing the foreign tax adjustment amount to be claimed

pursuant to Section 71 in order to make an estimation of the tax to be

paid in any income year pursuant to clause (b) of Sub-section (1), only

the foreign tax paid by any person in that year or the foreign income tax

estimated by him as payable in that year has to be computed.

(4) Unless and until any person paying installment of tax submits

to the department the amended estimate setting out the necessary



information and the reasons for amendment in the format referred to in

Sub-section (1), the estimate made by him pursuant to that subsection

shall remain valid throughout the income year.

(5) Notwithstanding anything contained in subsection (2), the

amended estimate submitted by any person pursuant to Sub-section (4)

shall be applicable only in computing the installment of tax to be paid

pursuant to Section 94 in that income year after the date of its

submission to the Department.


(5), the Department may so specify that any person or class who has to

pay installment of tax is not required to submit an estimate pursuant to

Sub-section (1).


cases where any person who has to pay installment of tax does not

submit an estimate in any income year pursuant to Sub-section (1) or

where the Department is not satisfied with the submitted estimate or

amended estimate or where it is so specified pursuant to Sub-section (6)

that any person is not required to submit an estimate to pay installment

of tax, the Department may do as follows:-

(a) The person referred to in clause (a) or (b) of

Section 3 may make an estimate of the estimated

tax to be paid by him/her in that year on the basis

of the tax required to be paid by him/her in the last

income year, and

(b) In cases where the Department is not satisfied with

the estimate prepared pursuant to clause (a), the

method used to prepare the estimate and the

estimate submitted by the person, the Department



shall give a notice in writing setting out the reasons

therefor to the person who has to pay installment.

(8) In cases where the Department gives a notice to the person

who has to pay installment pursuant to Sub-section (7), the amount of

estimated tax to be paid by that person in that year shall be the amount

estimated by the Department.

Chapter-19

Income Return and Assessment of Tax

96. Income return: (1) Each person shall, within three months of expiration

of an income year, and subject to Sections 97, 98 and 100, submit an

income return of that year in the place as specified by the Department.

(2) The income return referred to in Sub-section (1) shall be as

follows:

(a) It has to be prepared in the manner and format as

specified by the Department, setting out the

following matters:

(1) Assessable income earned by that person

from each employment, business or

investment in that year and source of such

income,

(2) Taxable income of that person in that year

and the tax to be imposed on the person

referred to in clause (a) of Section 3 in

respect of that income,

(3) The income sent abroad in that income year

by a non-resident person's foreign permanent



establishment situated in Nepal, and the tax

imposable in that income,

(4) Tax deduction, installment or amount of any

assessed tax paid in that year by any person

in a manner to have tax adjustment pursuant

to Sections 93, 94 or 100,

(5) Amount of tax due and payable to be set by

subtracting the tax paid by that person in that

year pursuant to sub-clause (4) from the

amount of tax mentioned in sub-clauses (2)

and (3), and

(6) Any other information and details as

specified by the Department.

(b) The income return has to be signed by that person

or manager, covenanting that it is true and

complete, and

(c) The income return has to be accompanied by the

followings:

(1) The certificate of withholding of tax

pursuant to Section 91 for the payment

received by any person in the year of

submission of the income return,

(2) Any details made available to that person

pursuant to Sub-section (4),

(3) Evidence of choice, if any, made pursuant to

Sub-section (4) of Section 4, and



(4) Any other information and details as

specified by the Department.

(3) In cases where any person, except in capacity of an employee,

prepares or assists in preparing the income return of any other person or

the documents or details to be accompanied with the income return in

lieu of any payment, such a person has to certify the following matters:-

(a) Having examined the documents maintained by

other person pursuant to Section 81, and

(b) Having the circumstances in question been actually

reflected from the details or information.

(4) If the person required to certify the return pursuant to Sub-

section (3) refuses to certify, information, setting out the reasons for

such refusal, has to be given to the person whose income return is to be

certified.

(5) The Department may, in the following circumstances, require

any person to submit the income return of an income year or any part of

the income year within the time-limit mentioned in the written notice

given by it to such person subject to Section 100 prior to the due time-

limit for submission of the income return of the income year pursuant to

Sub-section (1):-

(a) In cases where that person becomes bankrupt,

insolvent or is dissolved,

(b) In cases where that person is to leave Nepal for an

uncertain period of time,

(c) In cases where that person is leaving the act being

carried out by him/her in Nepal, or



(d) In cases where the Department otherwise thinks it

proper.

97. Submission of income return not required: Except where the

Department issues a written order, the following person shall not be

required to submit the income return for any income year pursuant to

Section 96:

(a) Out of the persons mentioned in clause (a) of Section 3, any

person who is not required to pay tax in that income year,

(b) The person mentioned in clause (c) of Section 3 in that income

year, or

(c) Any resident natural person in whose respect Sub-section (3) of

Section 4 applies in that income year.

98. Extension of time-limit for submission of income return: (1) In cases

where any person who has to submit an income return pursuant to

Section 96 makes an application in writing, within the time limit for

submission of such return, to the Department for the extension of time

limit, the Department may extend the time-limit for submission of the

income return if the reasons are reasonable. Information of the decision

made by the Department on the application so made for the extension of

time limit has to be given in writing to the applicant.

(2) The department may extend, at one time or several times, the

time limit for a period not exceeding three months to submit the income

return pursuant to Sub-section (1).

99. Assessment of tax: (1) In cases where any person has submitted the

income return of any income year, setting out the following amounts, on

the date of submission of the return, the tax of the income return shall be

deemed as if it were assessed:-



(a) The amount of tax mentioned in the income return

and payable by the person mentioned in Clauses (a)

and (b) of Section 3 in that income year, and

(b) The amount of tax mentioned in the income rerun

and due and payable in that year.

(2) In cases where any person does not submit the income return

of any income year, tax shall be deemed to have been assessed as

follows on the due date for submission of the tax return until the tax

return is submitted:-

(a) The amount of tax payable by that person in that

year shall be equal to the sum of the amount of tax

deducted from the amount received pursuant to

Chapter-17 and the amount paid in installment for

that year pursuant to Chapter-18, and

(b) Tax shall not be deemed due and payable as per tax

assessment.

100. Self-assessment of tax: (1) Section 99 shall be applicable in cases

where the income return of any income year or any part of any income

year has to be submitted pursuant to Sub-section (5) of Section 96.

(2) Notwithstanding anything contained in Sub-section (1), in the

circumstances mentioned in Sub-section (5) of Section 96, the

Department may, based on the following amounts, assess the tax of that

person in a justifiable manner:-

(a) The amounts mentioned in sub-clauses (1), (2), (3)

and (4) of clause (a) of Sub-section (2) of Section

96, for any income year or any part of that year,



(b) The amounts due and payable under sub-clause (5)

of clause (a) of Sub-section (2) of Section 96, for

any income year or any part of that year.

(3) The following provision shall be applicable in cases where tax

is assessed pursuant to Sub-section (1) or (2):-

(a) A person whose tax is assessed for the whole

income year is not required to submit the income

return referred to in Sub-section (1) of Section 96

for that income year, or

(b) A person whose tax is assessed for a portion of any

income year is required to submit the income return

referred to in Sub-section (1) of Section 96 for that

income year.

(4) The amount of tax paid as per the assessment of tax for a

portion of any income year may be adjusted to the tax chargeable as per

the assessment of tax for the whole year.

(5) In assessing the tax pursuant to this Section, the Department

has to give a time limit of Seven days for the submission of proof and

evidence for defense.

101. Amended tax assessment: (1) The Department may have amended tax

assessment in order to adjust the tax liability of a person whose tax has

been assessed pursuant to Section 99 or 100 on reasonable grounds.

(2) In cases where the Department thinks it proper to re-amend

the amended tax assessment made pursuant to Sub-section (1), it may

amend it, for as many times as it deems appropriate on reasonable

grounds.



(3) The Department shall, in assessing the tax pursuant to Sub-

section (1) or (2), complete assessment within Four months from the

following date:-

(a) In cases where tax is assessed pursuant to Section

99, the due date for the submission of income

returns,

(b) In cases where tax is assessed pursuant to Sub-

section (2) of Section 100, the date on which the

tax assessment notice is given to the person whose

tax is assessed,

(c) In cases where tax is assessed pursuant to Sub-

section (1) or (2), the date mentioned in clause (a)

or (b) related with the previous tax assessment that

has been amended pursuant to Sub-section (1).


cases where the tax of any person has been assessed in a wrong manner

due to fraud, the Department may amend such tax assessment at any

time. Such amendment has to be made no later than one year of receipt

of information that details have been given or tax assessed fraudulently.


cases where the tax assessment is amended or the assessed tax is

lessened by the Revenue Tribunal or other competent courts, the

Department shall not be able to amend such tax assessment to that

extent.

Provided that, in cases where an order has been issued to

reexamine it, it shall not be deemed to bar the making of amendment.

(6) In making amendment to tax assessment pursuant to this

Section, the Department has to give that person a notice in writing



clearly setting out the grounds for such amendment and a time limit of

Seven days for the submission of proof and evidence for defense on

such assessment of tax.

102. Tax assessment notice: The Department has to give the person, whose

tax is assessed, a written notice of tax assessment made pursuant to Sub-

section (2) of Section 100 or Section 101 setting out the following

matters:-

(a) The assessed tax to be paid and due and payable by the person

mentioned in clauses (a) and (b) of Section 3 for the income year

or period related with assessment of tax,

(b) The method of computation of tax in the tax assessment as

mentioned in clause (a),

(c) The reasons why the Department has to assess the tax,

(d) The time for payment of the assessed tax due and payable, and

(e) The time, place and mode for making a petition in cases where

one is not satisfied with the assessment of tax.

Chapter-20

Collection, Remission and Refund of Tax

103. Security for tax payable by withholding: (1) The tax required to be

withheld by a person who has to withhold tax pursuant to Chapter-17

has to be given preference to any payment to be made by the order of a

court or as per any other law or in any other manner.

(2) The following provisions shall apply in respect of the tax

withheld by a person who has to withhold tax pursuant to Chapter-17:-



(a) The tax withheld by such a person as well as the

property, if any, received for such tax shall be

deemed to have been withheld for Government of

Nepal,

(b) The amount of tax so withheld cannot be attached

to the loan or liability of such a person, and

(c) In cases where the person withholding such tax

becomes bankrupt or is dissolved, the amount of

tax so withheld shall not be treated as a part of the

assets so become bankrupt or dissolved; and in

making division upon such dissolution or

bankruptcy, the Department shall have the first lien

over the tax withheld or over the property.

104. Lien over property: (1) Notwithstanding anything contained in the

laws in force, in cases where any person does pay tax on the due date for

payment of tax, the lien of Government of Nepal shall be deemed to

have been created over the property of the person who is in arrear of tax.

(2) In claiming the property over which the lien is created

pursuant to Sub-section (1), the Department has to give that person a

written notice setting out the following matters:-

(a) Description of the property claimed,

(b) Limit of the claim referred to in Sub-section (3),

(c) Tax related to the claim, and

(d) Other matters, if any.

(3) In making claim over the property pursuant to Sub-section

(2), the claim shall be created only to the extent of the tax due and

payable by such a person, interest and claim to be paid in respect of www.lawcommission.gov.np135


such tax pursuant to Section 119 and the expenses incurred in auction

sale.

(4) The claim made pursuant to Sub-section (2) shall not lie

unless and until the following matter takes place:-

(a) Until the Department gives information to have the

claim registered pursuant to Sub-section (6) in

respect of the building and land,

(b) Until the Department possesses such property

pursuant to Sub-section (3) of Section 105 in

respect of other direct/tangible property, and

(c) Until the notice referred to in Sub-section (2) is

given to the person who is in arrear of tax, in any

other circumstances whatsoever.

(5) In cases where the person who is in arrear of tax pays to the

Department all the amounts referred to in Sub-section (3) and covered

by the claim made pursuant to Sub-section (2), which are due and

payable by such a person.

(6) In cases where the Department makes a claim over any land

or building pursuant to Sub-section (2), information has to be given to

the concerned Land Revenue Office; and that Office has to so withhold

such land or property that it cannot be sold and disposed of to or

ownership to it cannot be transferred to any person.

(7) In cases where the claim over the land and building has to be

released pursuant to Sub-section (5), the Department has to give

information thereof to the Land Revenue Office. Upon receipt of such

information, the Land Revenue Office has to release the land and

building so withheld.



(8) The Department has to promptly give the person in arrear of

tax a notice setting out the following matters, in respect of the expenses

to be incurred pursuant to Sub-section (3):

(a) The expenses incurred by the Department for the

claim on the property of the person in arrear of tax

and for the auction sale thereof, prior to giving such

a notice, and

(b) The date on which the person in arrear of tax has to

pay such expenses to the Department.


"expenses incurred for claim and auction sale"

means the following expenses incurred or to be

incurred by the Department:

(a) The expenses incurred or to be incurred by

the Department in creating or releasing the

claim over the property, or

(b) The expenses incurred or to be incurred by

the Department pursuant to Section 105 in

possessing, holding and auctioning the

claimed property.

105. Auction sale of the claimed property: (1) The department has to give

the person in arrear of tax a notice on auctioning the claimed property

held by the person in arrear of tax.

(2) The notice given pursuant to Sub-section (1) may be included

in the notice given pursuant to Sub-section (2) of Section 104 or

attached with such a notice. Such a notice has to clearly set out the

following matters and be given to the person in arrear of tax:-



(a) The property claimed and the mode and time of

auction or sale of the property, and

(b) In respect of a tangible property, mode and place of

possessing the property by the Department.

(3) After the Department has given the notice referred to in Sub-

section (1) or (2) to the person in arrear of tax, it may do as follows:-

(a) To have possession of the tangible property

mentioned in the notice at any time,

(b) To enter into any premises mentioned in the notice

referred to in Sub-section (1) for the purpose of

having possession of the tangible property at any

time,

(c) In respect of the tangible property except the land

or building, to keep such properties in such place as

thought proper by the Department at the expense of

the person in arrear of tax.

(4) In cases where the Department has given the notice referred

to in Sub-section (1) to the person in arrear of tax, it may, in the

following time, publicly auction such claimed property or sell and

dispose of or use such property in such manner as thought proper:

(a) If the claimed property is the land or building, after

thirty days of the date of possession of such

property pursuant to Sub-section (3),

(b) If the claimed property is a perishable tangible

property, after one day of the date of possession

pursuant to Sub-section (3),



(c) If the claimed property is a tangible property except

those properties mentioned in clause (a) or (b), after

ten days of possession pursuant to Sub-section (3),

and

(d) If the claimed property is any other kind of

property, after ten days of possession of such

property pursuant to Sub-section (3).

(5) The expenses incurred in having claim and auctioning the

property auctioned shall first be deducted from the proceeds derived

from the auction sale pursuant to Sub-section (4). After the expenses are

so deducted, the payable tax and the interest payable on the tax pursuant

to Section 119 shall be deducted; and then, if any amount remains

balance, such amount shall be refunded to the person in arrear of tax.

(6) After the proceeds derived from the auction sale have been

adjusted pursuant to Sub-section (5), the Department has to give a

written notice setting out the process of the adjustment to the person in

arrear of tax.

(7) In cases where, in adjusting the proceeds derived from the

auction sale by following the process referred to in Sub-section (5), the

proceeds are not sufficient to fully pay the amounts for the expenses

mentioned in that Sub-section, tax and interest, the Department has to

re-institute the action to recover the shortfall amount pursuant to Section

104, 111 or this Section.


(a) "Claimed property" means the property of the

person withholding tax, who is in arrears of tax,

mentioned in Sub-section (2) of Section 103 or

Sub-section (2) of Section 104.



(b) "Expenses incurred in making claim and auction

sale" means the expenses incurred in making claim

and auction sale pursuant to Section 104.

(c) "Person in arrear of tax" includes the person

withholding tax mentioned in Sections 103 and

104.

106. To prevent departing from the Nepal: (1) In cases where any person

does not pay the tax within the time limit due for the payment of tax, the

Tax Department may, by giving a written notice to the concerned office

of Government of Nepal, issue an order to prevent such person from

leaving the country for a period not exceeding 72 hours from the date of

expiration of the time of issue of the notice to such person to pay tax.

(2) In cases where any additional act has to be done during the

period of time mentioned in Sub-section (1), the Department has to

obtain prior leave of the Court of Appeal.

(3) In cases where the person referred to in Sub-section (1) pays

tax or the department thinks that such person has made satisfactory

arrangement on payment of tax, it may withdraw such order by giving a

notice to the concerned office pursuant to Sub-section (1).

107. Officer employee of entity to be made responsible: (1) In cases where

any entity does not observe anything required to be observed under this

Act, each person who acts as the officer of that entity at that time shall

be responsible for that.

(2) In cases where any entity does not pay tax on the date due for

payment of tax, all officers who are incumbent in that entity for the time

being or incumbent until before six months shall be jointly and severally

liable to pay that tax.




(2), these Sub-sections shall not be applicable in the following

circumstances:-

(a) Where the entity has committed such offense

without knowledge and consent of such person, and

(b) Where that person has, in order to avoid such

offense, observed or exercised care, effort and skill

which a reasonable man would observe or exercise

in similar circumstances.

(4) In cases where any person pays the tax required to be paid

pursuant to Sub-section (2), that person may do as follows:-

(a) To recover the amount which he has so paid from

that entity,

(b) For purposes of clause (a), to so hold under own

control the property including the moneys of that

entity which is under his possession or which may

come under his possession that it is not in excess of

the amount so paid.

(5) In cases where any person holds any property under his

control pursuant to clause (b) of Sub-section (4), the entity or any other

person shall not be entitled to make any claim against such person.

Explanation: For purposes of this Section, "officer of any entity"

means the manager of that entity or any person who acts in that

capacity.

108. Recovery of tax from recipient: (1) Each recipient has to give a notice

of the matter to the Department no later than Fifteen days of the date of



appointment to the post of recipient or the date of having possession of

the property situated in Nepal, whichever is earlier.

(2) The Department has to give a written notice to the person in

arrear of tax on the amount to be paid.

(3) On receipt of the notice referred to in Sub-section (1), the

recipient has to do as follows:-

(a) To set aside the amount notified by the Department

under Sub-section (2) after making payment of the

loan, if any, which is preferential to the tax payable

pursuant to Sub-section (2), subject to clause (c) of

Sub-section (2) of Section 103, from the proceeds

of the sale of the required portion of the property

which have come under possession of the recipient,

and

(b) To pay to the Department the amount so set aside

for his tax liability on behalf of the person in arrear

of tax.

(4) It shall be the personal liability of the recipient to pay to the

Department the amount equal to the tax liability payable by such person

in arrear of tax to the extent that no amount has been set aside by the

recipient pursuant to Sub-section (3).

(5) Provided that, the recipient may recover from the person in

arrear of tax the amount of tax paid.


(a) "Recipient" means any of the following persons:

(1) A liquidator,



(2) A person appointed from outside or by a

court as a recipient in respect of any

property or entity,

(3) A person possessing a property by mortgage,

(4) Heir apparent, administrator or manager of

the property belonging to a deceased natural

person, or

(5) A person looking after the affairs of an

incapacitated natural person.

(b) "Person in arrear of tax" means the person whose

property has come under possession of the

recipient.

109. Recovery of tax from the person liable to pay tax: (1) In cases where

the person in arrear of tax does not pay tax within the due date for

payment of tax, the Department may, by giving a notice in writing,

order any of the following payers to pay to it the amount to the extent of

the amount of tax payable on behalf of the person in arrear of tax, within

the date mentioned in that notice:-

(a) The person who has to pay amount to the person in

arrear of tax,

(b) The person who holds money for or on behalf of

the person in arrear of tax,

(c) The person who holds money on behalf of any third

person in a manner to pay it to the person in arrear

of tax, or



(d) The person who has got authority from the third

party to pay the amount to the person in arrear of

tax.

(2) The Department has to give a copy of the notice given to the

payer pursuant to Sub-section (1) to the person in arrear of tax.


date mentioned in the notice referred to in that Sub-section shall not be

earlier than the date mentioned in clauses (a) and (b):-

(a) The date on which the amount has to be paid to the

person in arrear of tax or the date on which such

amount has been held on his behalf, and

(b) The date on which the notice has been given

pursuant to Sub-section (2).

(4) The amount paid by the payer pursuant to Sub-section (1)

shall be deemed as paid to the person in arrear of tax. The person in

arrear of tax or any other person shall not be allowed to claim such

amount against the payer.

110. Recovery of tax from the agent of a non-resident person: (1) In cases

where a non-resident person in arrear of tax does not pay tax within the

due date for payment of tax, the Department may, by giving a notice in

writing, order any person who is in possession of any property owned by

the person who is in arrear of tax to pay tax from the amount equivalent

to the market value of that property, on behalf of the person in arrear of

tax, in respect of the tax liability of the third person, in the sum not

exceeding the amount of tax payable by such person in arrear of tax,

within the date mentioned in the notice.

(2) In cases where any person pays the amount of tax as per the

order referred to in Sub-section (1), he may do as follows:-



(a) To recover the amount of such payment from the

person in arrear of tax,

(b) For purposes of clause (a), to take under his

control any property whatsoever, including the

money belonging to the person in arrear of tax,

which is or would come in his possession, in such a

manner that it is not in excess of the amount so

paid.

(3) In cases where any person takes possession of any property

pursuant to clause (b) of Sub-section (2), the person in arrear of tax or

any other person shall not be allowed to make any claim against such a

person.

111. Institution of case on failure to pay tax: The Department may file a

case in the concerned District Court for the recovery of tax from the

person who does not pay tax on the due time-limit for payment of tax.

112. Remission: (1) In cases where the tax payable by any person cannot be

recovered, Government of Nepal may remit such tax in full or in part.

(2) Notwithstanding anything contained in Sub-section (1),

Government of Nepal may remit, in full or in part, the fee or interest

imposed pursuant to Chapter-22.

113. Tax refund and adjustment of amount: (1) In cases where any person

has paid tax exceeding the tax liability payable by him/her, the

Department may give direction to subtract the excess amount of tax paid

by him/her from the amount of tax payable by him pursuant to this Act.

The Department has to refund the excess amount to be set by such

subtraction to the concerned person.



(2) In cases where the tax in question is not to be paid along with

the interest paid by any person pursuant to Section 119, the Department

has to refund such interest to that person.

(3) Any person has to make an application to the Department, as

prescribed, for the refund of the amount pursuant to Sub-section (1).

(4) The person who makes an application pursuant to Sub-section

(3) has to make such application within two years from the latest date

out of the following dates. In cases where an application is not made

within that time-limit, the amount referred to in Sub-section (1) shall not

be refunded:-

(a) The date of expiration of the income year existed

by virtue of payment of the excess amount,

(b) The date on which the excess amount is paid, or

(c) The date on which is the case is decided.

(5) The Department has to give a notice in writing of the decision

made by it on the application made pursuant to Sub-section (3).

(6) In refunding any amount of tax by the Department to any

person by virtue of the order of a court or any other reason, the

Department has to pay to such a person the interest as per the normal

rate for the following period:-

(a) In cases where such tax refund is related to the

excess tax adjustment available to any person in

any income year pursuant to Sections 93, 94 or 100,

the period between the due date for submission of

the tax return pursuant to Section 96 and the date of

tax refund, and



(b) In any other cases, the period between the date of

payment by such person of the refundable tax and

the date of tax refund.

(7) Tax deduction that can be claimed pursuant to Section 51 or

71 shall not be adjusted in any year, and such tax deduction shall not be

adjusted in amounts or refunded pursuant to this Sub-section.

Provided that, in that year the tax deduction adjustment may be

made in accordance with the provisions contained in Sub-section (2) of

Section 4, Sub-section (4) of Section 51 and Sub-section (3) of Section

71.



Chapter-21

Review and Appeal

114. Decisions subject to administrative review, and procedures: (1) For

purposes of this Act, the following decisions may be subject to

administrative review:-

(a) Advance ruling issued by the Department pursuant

to Section 76,

(b) Estimate made by the Department on, or decision

made by it to estimate, the estimated tax payable by

any person, pursuant to Sub-section (7) of Section

95,

(c) Decision made by the Department to order any

person to submit the income return pursuant to Sub-

section (5) of Section 96 or Section 97,

(d) Decision made by the Department on any

application made by any person for the extension of

the time-limit for submission of the income return

pursuant to Section 98,

(e) Assessment of tax payable by any person for any

income year pursuant to Section 100 or 101 or

assessment of the fees and interest payable by any

person pursuant to Section 122,

(f) Notice given by the Department requiring to set

aside the amounts as receivable by any person as a

recipient, pursuant to Sub-section (2) of Section

108,



(g) Decision made by the Department to order any

person who holds moneys payable to the person in

arrear of tax to pay the same to the Department


(h) Decision made by the Department to order any

person to pay tax of any person due and payable on

behalf of a non-resident person pursuant to Sub-

section (1) of Section 110,

(i) Decision made by the Department on any

application made by any person for the refund of

tax pursuant to Sub-section (5) of Section 113, and

(j) Decision made by the Department on any

application made by any person for the extension of

the time-limit for filing a complaint pursuant to

Sub-section (3) of Section 115.

(2) Notwithstanding that the Department makes any decision on

the matters mentioned in clauses (d), (i) and (j) of Sub-section (1), in

cases where the Department does not give a notice of the decision to the

applicant within thirty days after the making of the application pursuant

to Section 98, Sub-section (3) of Section 113 or Sub-section (3) of

Section 115, the decision may be subject to administrative review as if it

were a decision to reject the application.

(3) In cases where the applicant does receive a notice of decision

within the time-limit referred to in Sub-section (2) and registers

information thereof with the Department, the decision made by the

Department to reject the application mentioned in that Sub-section and

notice thereof shall be deemed to have been served on that person on

that date.



115. Application for administrative review: (1) A person who is not

satisfied with any decision subject to administrative review as referred

to in Section 114 may make an application to the Department against the

decision within Thirty days of the date of receipt of a notice of that

decision.

(2) The application as referred to in Sub-section (1) has to clearly

set out the reasons and grounds for such review.

(3) In cases where the time limit for making application pursuant

to Sub-section (1) expires and any person makes an application for the

extension of time limit within Seven days from the date of expiration of

the time limit, the Department may do as follows:-

(a) To extend the time limit for a period not exceeding

Thirty days from the date of expiration of the time

limit for making application pursuant to Sub-

section (1), where there are reasonable reasons, and

(b) To give the applicant a written notice of the

decision made by the Department on the

application.

(4) The implementation of the decision mentioned in Sub-section

(1) of Section 114 shall not be deemed to be affected from the making

of application pursuant to Sub-section (1).


Department may hold in pending or otherwise affect the decision made

pursuant to Sub-section (1) of Section 114 pending the settlement of the

application made by any person pursuant to Sub-section (1).


provision contained in that Sub-section shall not apply until Fifty

percent of the amount of tax payable is paid.



(7) The Department may do as follows on the application made

by any person pursuant to Sub-section (1):-

(a) To accept or reject, fully or partly, the matters

mentioned in the application, and

(b) To give a written notice of the decision on the

application.

(8) In cases where the Department does not give the applicant a

notice of the application within Ninety days from the date on which the

application was made pursuant to Sub-section (1), the applicant may

register information thereof with the Department and consider the

application rejected by the Department.

(9) The concerned applicant has to give written information to the

Department that he has considered the application as rejected pursuant

to Sub-section (8). The decision made by the Department to reject such

application and notice thereof shall be deemed to have been served on

that person on the date on which such information was registered.

116. Appeal in the Revenue Tribunal: (1) A person who is not satisfied

with any decision made to the Department pursuant to Section 115 may

file an appeal to the Revenue Tribunal under the Revenue Tribunal Act,

2031(1974).

(2) The person who files an appeal pursuant to Sub-section (1)

has to register a copy of the appeal with the Department within Fifteen

days of the date of filing appeal.

(3) The implementation of the decision mentioned in Sub-section

(1) of Section 114 shall not be deemed to be affected from the filing of

an appeal pursuant to Sub-section (1).



(4) Notwithstanding anything contained in Sub-section (1) of

Section 114, in cases where the Director General has made a decision

subject to administrative review as mentioned in that Sub-section, an

appeal may be filed to the Revenue Tribunal.

Chapter-22

Fees and Interest

117. Fees to be charged in cases where documents are not maintained or

return or income return is not submitted: (1) If any person does not

do the followings, a fee in a sum to be set by One and a half percent per

year of the assessable income drawn out without deducting any amount,

if any, that can be deducted and by including any amount, if any, that

has to be included in computing the income of any income year for each

month and portion of the month or a sum set by One Thousand Rupees

per month, whichever is higher, shall be imposed on such a person:-

(a) In cases where the income return of any income

year has not been submitted pursuant to Sub-section

(1) of Section 95, or

(b) In cases where the income return of any income

year is not submitted pursuant to Sub-section (1) of

Section 96.

(2) If any person does not maintain the documents required to be

maintained in any income year pursuant to Section 81, a fee in a sum to

be set by one and a half percent per year of the assessable income drawn

out without deducting any amount, if any, that can be deducted and by

including any amount, if any, that has to be included in computing the

income of any income year for each month and portion of the month or

a sum set by one Thousand Rupees per month, whichever is higher,

shall be imposed on such a person.



(3) If any person withholding tax does not submit the return

referred to in Sub-section (1) of Section 90, a fee in a sum to be set by

one and a half percent per year of the amount of tax to be withheld for

each month and portion of the month from the due date for submission

of the return until the date on which such return is submitted shall be

imposed on such a person.

118. Fees to be charged in cases where the person making payment in

installments makes lesser payment of estimated tax: (1) In cases

where the amount of installment tax paid by any person pursuant to

clause (a) of this Sub-section is less than the amount of tax to be paid in

installment pursuant to clause (b), interest shall be charged on such less

amount pursuant to Sub-section (2):-

(a) The estimated or amended amount of tax computed

by the person required to pay tax in installment

pursuant to Section 95 in respect of the installment

tax to be paid in any year pursuant to section 94,

(b) The amount of tax to be set by ninety percent of the

amount of tax to be paid by the person referred to

in clauses (a) and (b) of Section 3 in that year.

(2) A fee in a sum to be set by the normal rate of interest, for

each month and portion of the month, from the due date for payment of

the first installment in that year until the date on which the tax is

assessed and becomes due and payable pursuant to Section 99 shall be

imposed on the person referred to in Sub-section (1).

(3) In cases where the amount referred to in clause (a) is higher

than the amount referred to in clause (b), interest shall be charged,

pursuant to Sub-section (2), on such higher amount by the normal rate

on the amount of each period.



(a) In cases where the estimate or revised estimate of

the total amount to be paid by any person in

installment for each installment period in any

income year is accurate, Ninety percent of the

amount,

(b) The amount of installments paid in that income

year.

119. Interest to be charged in cases where tax is not paid: (1) In cases

where any person does not pay tax on the prescribed due date for

payment of tax, an interest by the normal rate of interest, for each month

and portion of the month, in the amount due and payable shall be

imposed on the person for the period during which tax is so due and

payable.

(2) For purposes of computing the interest to be paid pursuant to

Sub-section (1), interest shall not be exempted in the extended time-

limit given pursuant to Section 98.

(3) The person withholding tax shall not be allowed to recover

the interest payable by him because of his failure to observe Sub-section

(4) of Section 90 from the person subject to tax withholding.

120. Fee to be charged on the person who submits false or misleading

statement: In cases where any person submits to the Department a false

or misleading statement on any matter or the information mentioned in

the statement becomes misleading as result of concealing information of

any matter or thing required to be submitted or removing such

information from the statement, the following fee shall be imposed on

such a person:-



(a) In cases where it has become false or misleading

not by knowingly or recklessly but by mistake,

Fifty percent of the less amount resulted therefrom.

(b) In cases where it has become false or misleading

knowingly or recklessly, One Hundred percent of

the less amount resulted therefrom.

Explanation: For purposes of this Section, "statement submitted to the

Department" means any statement submitted in writing to the

Department or to the officer authorized by the Department in the course

of performing the duty pursuant to this Act and includes the statement

submitted as follows:-

(a) Application, notice, description, complaint,

deposition, or other document submitted, prepared,

given or furnished pursuant to this Act,

(b) Document submitted to the Department or any

officer of the department except under this Act,

(c) Reply to any question asked by the Department or

any officer to any person, or

(d) Information given by any person who has

reasonable knowledge of the matter to be informed

to the Department or any officer through any other

person.

121. Fee to be imposed on accomplice: A fee of cent percent amount of the

tax less paid by an accomplice who knowingly or recklessly aids or

abets or advises any offender referred to in Chapter-23 shall be charged

on such accomplice.



122. Assessment of fee and interest: (1) The Department shall assess the fee

and interest required to be paid by any person pursuant to this Chapter.

(2) In computing the liability for the fee and interest chargeable

where any particular act has not been performed or chargeable in respect

of any statement pursuant to this Chapter, it shall be computed

separately in the case of each section of this Chapter.

(3) The fee and interest chargeable pursuant to this Section shall

be added to any other tax, if any, payable pursuant to this Act; and mere

payment of such fee and interest shall not be deemed as the release of

any person from the liability related to criminal proceedings mentioned

in Chapter-23.

(4) In cases where the fee and interest have been assessed

pursuant to this Section, the Department shall give a written notice of

the assessment, setting out the following matters, to that person. Such

notice may be attached to and sent along with the notice to be issued

pursuant to Section 102:

(a) The reasons why the Department has to assess the

fee and interest,

(b) The amount for the fee and interest payable,

(c) The method how the amount has been computed,

(d) The time, place and mode for making a compliant

against

the assessment.

(5) It shall be as follows in assessing the fee and interest pursuant

to this Section:-

(a) The matters contained in Sub-section (1), Sub-

section (2), clause (b) of Sub-section (3), Sub-www.lawcommission.gov.np156


section (4) and (5) of Section 101 shall also be

applicable in assessing the fee and interest pursuant

to this Section, and

(b) The matters contained in clauses (b) and (c) of Sub-

section (3), Sub-sections (4) and (5) of Section 101

and Section 102 shall also be applicable in the case

of Sub-section (4) of this Section.

Chapter-23

Offense and Punishment

123. Penalty to one who does not pay tax: A person who does not pay tax,

without any reasonable ground, by the due date for payment of tax shall

be punished with a fine of a sum from Five Thousand Rupees to Thirty

Thousand Rupees or with imprisonment for a term from One month to

Three months or with both penalties.

124. Penalty to one who submits false or misleading statement: In cases

where any information or statement submitted by any person to the

Department is false or misleading because of submission with intention

or recklessness or that information becomes misleading since such

person has not mentioned information of any particular matter or thing

in the statement in respect of such subject, such person shall be punished

with a fine of a sum from Forty Thousand Rupees to One Hundred Sixty

Thousand Rupees or with imprisonment for a term from Six months to

Two years or with both penalties.

Explanation: For purposes of this Section, "any information or

statement submitted to the Department" means the statement/details

mentioned in the explanation referred to in Section 120.

125. Penalty to one who obstructs or unduly influences tax

administration: (1) A person who commits the following act shall be www.lawcommission.gov.np157


punished with a fine of a sum from Five Thousand Rupees to Twenty

Thousand Rupees or with imprisonment for a term from one month to

Three months or with both penalties:-

(a) To obstruct the officer of the Department in the

course of carrying out his duty pursuant to this Act,

(b) Not to act as per the notice referred to in Section

83, or

(c) To obstruct in any other manner in the

implementation of this Act.

(2) Any person who attempts to commit an act referred to in Sub-

section (1) shall be punished with half a punishment mentioned in that

Sub-section.

126. Penalty in the event of commission of offence by the person with or

without authority: (1) Any authorized person who violates Section 84

shall be punished with a fine of a sum not exceeding eighty Thousand

Rupees or with imprisonment for a term not exceeding one year or with

both penalties.

(2) In cases where any person who is not authorized under this

Act collects tax or any other amount in the name of tax or attempts to

collect the same, such a person shall be punished with a fine of a sum

from eighty Thousand Rupees to two hundred Thousand Rupees or with

imprisonment for a term from one year to three years or with both

penalties .

127. Penalty to accomplice: Any person who intentionally aids or abets or

advises any other person to commit any offense under this Act shall be

punished with half a punishment imposed on the offender.



Provided that, if such an accomplice is a governmental employee,

he shall be liable to punishment equal to the punishment imposed on the

offender.

128. Penalty to one who does not observe the Act: Except as otherwise

provided for in this Act, any person who does not observe any

provisions of this Act or the rules framed under this Act shall be

punished with a fine of a sum from Five Thousand Rupees to Thirty

Thousand Rupees.

129. Power of Department to pay amount of fine: (1) Notwithstanding

anything contained elsewhere in this Chapter, in cases where any person

admits in writing that he has committed any one or more offenses

mentioned in this Chapter, except the offense mentioned in Section 126,

before the commencement of the court proceedings, the Department

may order such a person to pay the amount of fine not exceeding the

amount of fine imposable for the commission of such one or more than

one offense.

(2) In making the order referred to in Sub-section (1), the

Department has to set out in such an order such offense, the amount of

fine to be paid and the date for payment of the amount of fine.

(3) The order made by the Department pursuant to this Section

shall be final and no appeal may be made against it.

130. To be state cases: The Government of Nepal shall be the plaintiff in the

cases under this chapter.

131. Investigation and filing of cases: (1) The prescribed officer shall

investigate the case on the offense punishable under this Chapter, and

case shall be filed in the concerned District Court within thirty five days

of the completion of such investigation.



(2) In conducting investigation pursuant to Sub-section (1), the

investigating officer shall seek advice and opinion of the government

attorney.

Chapter-24

Miscellaneous

132. Power to have expert's service: Government of Nepal may obtain the

service of the concerned expert for the act related to tax auditing; and

the provision on governmental secrecy mentioned in Section 84 shall

also apply to such expert.

133. Departmental action to be taken: In cases where the liability of a

taxpayer increases or decreases because of the assessment of tax made

with recklessness, the Director General may institute departmental

action to punish the concerned officer who has assessed such tax or has

not assessed the revised tax within the time limit referred to in Sub-

section (3) of Section 101.

134. Identity card of officer: Each officer has to hold the identity card as

prescribed and show such identity card where any one requests him to

show it.

135. Powers of court of law to be vested: For purposes of this Act, the

Department shall have the powers vested in a court under the law in

force in the matters of summoning the presence of the concerned person,

recording of statements, examining evidence, and compelling

production of documents.

136. Not to be responsible for an act done in good faith: Notwithstanding

anything contained elsewhere in this Act, no officer shall be personally

responsible for any act which he has done in good faith in carrying out

his duties.



137. Power of Government of Nepal to give order or direction:

Government of Nepal may give necessary order or direction to the

Department in order to make tax administration effective.

138. Power to frame Rules: Government of Nepal may frame necessary

rules in order to carry out the objects of this Act.

139. Power to make and enforce manuals: The Department may make and

enforce necessary manuals, subject to this Act and the rules framed

under this Act.

140. Alteration in Schedules: Government of Nepal may, by a Notification

in the Nepal Gazette, may make necessary alterations in the Schedules

other than Schedule-1.

141. Police to render assistance: It shall be the duty of the Police to render

the assistance sought by the Department on the implementation of this

Act and the rules framed under this Act.

142. This Act to prevail on tax provision: Notwithstanding anything

contained in the law in force, except in cases where the Financial Act to

be enforced in every year amends this Act and provides for the

imposition, assessment, increase, decrease, exemption, or remission of

tax, no other Act shall make other provisions on amendments to,

alteration in, the tax provisions referred to in this Act or other tax related

provisions.

143. Repeal, amendment and saving: (1) The Income Tax Act, 2031 (1974)

and the House and Land Rent Tax Act, 2023 (1966) are hereby repealed.

(2) The following Acts are hereby amended as follows:-

(a) Section 15 of the National Loans Act, 2017 (1960)

is hereby repealed.



(b) Amendment to the Employee Provident Fund Act,

2019 (1962): The words "no tax of any kind except

income tax shall be levied" shall be substituted for

the words "no tax of any kind shall be levied"

contained at the end of clause (b) of Section 18 of

the Employee Provident Fund Act 2019 (1962).

(c) Amendment to the Nepal Petroleum Act, 2040

(1984): Clause (c) of Section 13 of the Nepal

Petroleum Act, 2040 (1984) is hereby deleted.

(d) Amendment to Section 29 of the Retirement Fund

Act, 2042 (1986): The words "no tax of any kind

except income tax shall be levied" shall be

substituted for the words "no tax of similar other

kind shall be levied" contained in Section 29 of the

Retirement Fund Act, 2042 (1986).

(e) Amendment to Section 51 of the Citizen Investment

Fund Act, 2047 (1991): Section 51 of the Citizen

Investment Fund Act, 2047 (1991) is hereby

repealed.

(f) Amendment to Section 30 of the Nepal Academy

for Science and Technology Act, 2048 (1991):

Section 30 of the Royal Nepal Academy for

Science and Technology Act, 2048 (1991) is hereby

repealed.

(g) Amendment to Section 15 of the Industrial

Enterprises Act, 2049 (1992):



(1) Clauses (c), (d), (e), (j), (l), (p), (q), (r), (s),

(t) of Section 15 of the Industrial Enterprises

Act, 2049 (1992) are hereby deleted.

(2) The words " respectively Thirty, Twenty-

Five and Twenty percent on the income tax

until ten years of the date of operation and"

are hereby deleted.

(h) Amendment to the Foreign Investment and

Technology Transfer Act, 2049 (1992): Sub-section

(1a.) of Section 5 of the Foreign Investment and

Technology Transfer Act, 2049 (1992) is hereby

deleted.

(i) Amendment to the B. P. Koirala Health Science

Institute Act, 2049 (1992): The word "income-tax"

contained in the second line of Section 21 of the B.

P. Koirala Health Science Institute Act, 2049

(1992) is hereby deleted.

(j) Amendment to the Tribhuvan University Act, 2049

(1992): Sub-section (2) of Section 33 of the

Tribhuvan University Act, 2049 (1992) is hereby

deleted.

(k) Amendment to the Electricity Act, 2049 (1992):

(1) The word "income-tax" contained in the

heading of Section 12 of the Electricity Act,

2049 (1992) is hereby deleted.

(2) Sub-sections (1), (2), (3), (4), (5) and (6) are

hereby deleted.



(l) Amendment to the Pokhara University Act, 2053

(1996): Sub-section (2) of Section 36 of the

Pokhara University Act, 2053(1996) is hereby

deleted.

(m) Amendment to Section 18 of the B. P. Koirala

Memorial Cancer Hospital Act, 2053 (1996): The

word "income-tax" contained in Sub-section (1) of

Section 18 of the B. P. Koirala Memorial Cancer

Hospital Act, 2053 (1996) is hereby deleted.

(n) Amendment to the Town Development Fund Act,

2053 (1996): Section 24 of the Town Development

Fund Act, 2053 (1996) is hereby repealed.

(o) Sub-section (1) of Section 34 of the

Telecommunications Act, 2053(1996) is hereby

repealed.

(3) All acts and actions done or taken under the Acts or Sections

of the Acts repealed or amended pursuant to Sub-section (1) or (2) shall

be deemed to have been done or taken under this Act.

(4) The provisions of the Income Tax Act, 2031(1974) shall

apply to the provisions relating to the assessment and collection of

income tax for the income year prior to the commencement of this Act.



Schedule-1

(Relating to Section 4)

Rates of Tax

1. In the case of natural person: (1) Tax shall be levied by the following

rate on the taxable income of any resident natural person in any income

year, subject to Sub-sections (2) and (4) of this Schedule:-

(a) No tax shall be levied on the taxable income not

exceeding Fifty -five Thousand Rupees,

(b) Where the taxable income is more than Fifty-five

Thousand Rupees but less than One Hundred thirty

Thousand Rupees, Fifteen percent on the taxable

income of more than Fifty-five Thousand Rupees,

and

(c) Where the taxable income is more than One

Hundred thirty Thousand Rupees, Rs.11, 250.00 on

the taxable income up to One Hundred Thirty

Thousand Rupees and Twenty-Five percent on the

taxable income exceeding One Hundred Thirty

Thousand Rupees.

(2) Tax shall be levied by the following rates on the taxable

income of any spouse making a choice pursuant to Section 50 in any

income year, subject to Sub-sections (4) of this Schedule:-

(a) No tax shall be levied on the taxable income not

exceeding Seventy-Five Thousand Rupees,

(b) Where the taxable income is more than Seventy-

Five Thousand Rupees but less than One Hundred



Fifty Thousand Rupees, Fifteen percent on the

taxable income exceeding Seventy-Five Thousand

Rupees, and

(c) Where the taxable income is more than One

Hundred Fifty Thousand Rupees, Rs.11,250.00 on

the taxable income up to One Hundred Fifty

Thousand Rupees and twenty-five percent on the

taxable income exceeding One Hundred Fifty

Thousand Rupees.

(3) The provision contained in Sub-section (4) of this Schedule

shall apply in the following circumstances:-

(a) In the case of a resident natural person, where the

income is more than Fifty-five Thousand Rupees in

any income year or in the case of a resident spouse

who has not made a choice referred to in Section

50, , where the income is more than Seventy-Five

Thousand Rupees in any income year, and

(b) Where the net profit derived from the disposal of

non-business taxable property is included in the

computation of the income and corresponding

taxable income of that natural person or spouse.

(4) Tax shall be levied by the following rate on the following

person, subject to Sub-section (3) of this Schedule:-

(a) Tax shall be levied by the rate referred to in Sub-

section (1) or (2) of this Schedule on the amount

whichever is higher out of the following amounts,

as if only it were the taxable income of that natural

person or spouse:



(1) The amount remaining balance after

subtracting the amount of profit from the

total taxable income of that natural person or

spouse, or

(2) Fifty-five Thousand Rupees, in the case of a

natural person, or Seventy-Five Thousand

Rupees, in the case of a spouse.

(b) Tax shall be levied by ten percent on the remaining

amount of the taxable income.

Provided that, tax shall be deducted only by

six percent on the provident fund or gratuity paid

from an approved retirement fund.

(5) For the natural persons residing in the remote areas specified

by Government of Nepal, a maximum sum of thirty Thousand Rupees

may, for the remote allowance, be added, as prescribed, to the threshold

of non-taxable amount of Fifty -five Thousand Rupees and Seventy-Five

Thousand Rupees mentioned in Sub-sections (1), (2), (3) and (4) of this

Schedule.

(6) The threshold as referred to in Sub-section (4) of Section 4 of

this Act shall be an income of One Hundred Thousand Rupees and a

turnover equivalent to one million rupees.

(7) The amount of tax pursuant to Sub-section (4) of Section 4 of

this Act shall be as follows:-

(a) In the case of a natural person carrying on a

business in the municipal corporation or sub-

municipal corporation area, two Thousand Rupees,



(b) In the case of a natural person carrying on a

business in the municipal area, one thousand five

hundred rupees,

(c) In the case of a natural person carrying on a

business in any other place, one Thousand Rupees.

(8) Tax shall be levied by twenty-five percent on the taxable

income of a non-resident natural person in any income year.

(9) Notwithstanding anything contained elsewhere in this

Section, in cases where any resident natural person has a pension

income, tax shall be computed pursuant to this Section only on the

amount remaining balance after subtracting an additional twenty-five

percent of the amount mentioned in clause (a) of Sub-section (1) for the

natural person or in clause (a) of Sub-section (2) for the spouse from the

taxable income.

2. In the case of entity: (1) Tax shall be levied by twenty-five percent on

the taxable income of any entity in any income year, subject to Sub-

sections (2), (3), (4), (5) and (7) of this Section.

(2) Tax shall be levied by thirty percent on the taxable income of

any bank, financial institution, an entity carrying on general insurance

business or petroleum works pursuant to the Nepal Petroleum Act,

2040(1983), in any income year.

Explanation: "Taxable income", in the case of petroleum works, means

the taxable income assessed in accordance with the procedures

mentioned in the petroleum agreement and this Act and the Rules

framed under this Act.

(3) Tax shall be levied by twenty percent on the taxable income

of any entity earned in any income year as follows from the source in

Nepal:



(a) In cases where the entity is fully involved

throughout any year in the operation of a special

industry mentioned in Section 11 of this Act,

(b) In cases where the entity,-

(1) Builds and operates any road, bridge, tunnel,

ropeway or sky-bridge, or

(2) Operates any trolley bus or tram.

(4) In cases where, in any income year, any entity carries on

projects such as to build, operate any public infrastructure project and

transfer it to Government of Nepal and building power-house,

generation and transmission of electricity, tax shall be levied by twenty

percent on the taxable income of that entity.

(5) In the case of the money of any deceased resident person or

the taxable income of the trust of a disabled resident person, tax shall be

levied on such money or taxable income pursuant to Sub-sections (1)

and (4) of Section 1 of this Schedule as if the money or trust resident

were a natural person.

(6) Tax shall be levied by ten percent on the income sent abroad

by any non-resident person's foreign permanent establishment situated in

Nepal in any income year.

(7) Tax shall be levied by five percent on the taxable income of

any non-resident person in respect of the income mentioned in Section

70 in any income year.



Schedule-2

(Relating to Section 19)

Assessment of Depreciation Deduction

1. Categorization and classification of depreciable property: (1) The

depreciable property shall be categorized as follows:-

Category Description of property

"A" Building, structure and similar other structures of

permanent nature.

"B" Computer, data processing equipment, furniture, fixture

and office equipment.

"C" Automobiles, buses and mini-buses.

"D" Construction and excavation equipment, and the

depreciable properties not included in elsewhere including

Sub-section (3) of Section 17, Sub-section (3) of Section

18, and Sub-section (3) of this Schedule.

"E" Intangible properties except the depreciable properties

mentioned in category "D".

(2) Any depreciable property owned and used by any person in

any income year in making income from a business or investment shall

be placed in the category as follows at the time when it came under

ownership or came in use for the first time, and the categories shall be

deemed as the category of the depreciable property of that person in that

year:

(a) In respect of the similar properties under ownership

or in use of that person, the depreciable properties www.lawcommission.gov.np170


referred to in categories "A", "B", "C" or "D" in the

same category of other properties of that category.

(b) In respect of the depreciable property referred to in

category "E", they have to be placed under different

classes notwithstanding that the properties are of

the same category.

(3) The cost incurred in the excavation of natural resources,

extraction of minerals and its development in the course of earning

income from a business shall be deemed as the cost incurred in

purchasing the property for the business related with that income.

2. Depreciation cost: (1) Any person may, in any income year, deduct cost

equivalent to the depreciation in that year of the property of each class

computed pursuant to Sub-sections (2) and (6) of this Section, for the

classes of the depreciable properties belonging to that person.

(2) A person has to compute the depreciation deduction of the

properties of the class in his income year by using the following

formula:

A x B

"A" means the depreciation base amount in the class of the property at

the end of that income year.

"B" means the rate of depreciation deduction mentioned in Section 3 of

this Schedule, applicable to that class.

(3) The depreciation base amount of the depreciable properties in

categories "A", "B", "C" or "D" at the end of any income year has to be

set by subtracting the amount referred to in the following clause (c)

from the total of the following clauses (a) and (b).



Provided that, the amount so subtracted shall not be less than

zero.

(a) The remaining amount after deducting depreciation

cost of that class computed pursuant to Sub-section

(2) and (6) from the depreciation deduction base

amount of that class at the end of last year.

(b) The expenses referred to in Section 5 of this

Schedule or added to the class within that income

year and incurred for the properties added to that

class, on the depreciation deduction base amount of

that class in that year.

(c) Any amount derived from the disposal of any

property of that class in that year.

(4) The depreciation deduction base amount of each depreciable

property in category "D" at the end of any income year shall be a total

sum of the following amounts:-

(a) The depreciation deduction base amount of the

depreciable properties remaining in the class at the

end of last income year, and

(b) The amount added pursuant to Sub-section (5) for

the property within that class to the depreciation

deduction base amount in that fiscal year.

(5) The cost incurred for any depreciable property included in

any class of the depreciable property belonging to any person has to be

added as follows to the depreciation base amount of the class

concerned:-



(a) That property has to be computed as per the

following formula and added by considering the

first value in the time whichever is later out of the

time in which that property is included in the class

pursuant to Section 1 and the time in which

expenses are made to acquire that property:

A/3xB

For purposes of this Clause, "A' shall have the

following value for the following period:-

i. The end time of the period from the beginning of the

income year to the last day of Poush (mid January)

shall be three,

ii. The period from Magha (January/February) to the last

day of Chaitra (13 April) shall be two, and

iii. The period from Baisakh (April/May) to the last day of

the income year shall be one.

(b) The remaining part of cost shall be added in the

income year following the income year in which

the first part was added. Provided that, the class

was not dissolved pursuant to Sub-section (2) of

Section 4 of this Schedule in the meantime of that

period.

(6) In cases where, in deducting the depreciation cost to be

computed pursuant to Sub-section (2) of this Section from the

depreciation deduction base amount of the depreciable properties of

categories "A", "B", "C" or "D", it be less than two Thousand Rupees,

all the remaining amounts has to be computed for additional

depreciation cost.



3. Rate of depreciation: (1) The rate of depreciation applicable in the case

of each class mentioned in Sub-section (2) of Section 2 of this Schedule

shall, subject to Sub-section (2), be as follows:-

Category Rate

"A" 5 percent

"B" 25 percent

"C" 20 percent

"D" 15 percent

"E" The rate, in percentage, to be set by adjusting in the

nearest half year after dividing the cost of that

property at the time of its purchase by the period of

use of that property.

(2) The projects mentioned in Sub-section (2) of Section 19 of

this Act and the entities mentioned in Sub-sections (3) and (4) of

Section 2 of Schedule-1 shall get an addition of one thirds to the rate of

depreciation applicable to the depreciable properties mentioned in

categories "A", "B", "C" and "D" mentioned in Sub-section (1) of this

Schedule.

4. Disposal of depreciable property: (1) In cases where clause (a) is more

than clause (b) in computing he disposal of the depreciable property or

properties used in the business or investment of any person, such excess

amount has to be included in the income.

(a) The incomings derived from the disposal of his

depreciable property in any income year falling in

categories "A", "B", "C" or "D" of the class of any

person,



(b) The depreciation deduction base amount remaining

at the end of that year of the class pursuant to Sub-

section (3) of Section 2 of this Schedule, without

including the income derived from the disposal.

(2) In cases where any person disposes all the properties in the

class of depreciable property of that person prior to the expiration of any

income year, the class shall be deemed to be dissolved, and it shall be as

follows:-

(a) Where the depreciation deduction amount to be set

in computing depreciation as per the following

formula of the property in the class of depreciable

property is more than the depreciation deduction

base amount, that person shall be deemed to have

received such excess amount for that year.

A-B

or

(b) Where the depreciation deduction amount to be set

in computing depreciation as per the following

formula of the property in the class of depreciable

property is more than the depreciation deduction

base amount, that person shall get remission of

such excess amount of expenses in that year.

B–A


(1) "A" means the incomings derived or to be derived by any

person from the disposal of that property in that year,

(2) "B' means the total amount of clauses (i), (ii) and (iii) as

follows:-



(i) The remaining value of the descending system of

the class in that year,

(ii) The outgoings of that year added to the

depreciation base amount of the class, and

(iii) The outgoings to be added to the depreciation base

amount of the class in the forthcoming year

pursuant to Sub-section (5) of Section 2.

(3) For purposes of this Schedule, the remaining value of the

descending system of the class of depreciable property in any income

year means the following amount:-

(a) In the case of categories "A", "B", "C" or "D" of

the class, of any person, the amount to be set by

subtracting depreciation, if any, of the class

computed pursuant to Sub-sections (2) and (6) of

Section 2 of this Schedule for that year from the

depreciation base amount remaining at the end of

the preceding income year of that class,

(b) In the case of category "D" of the class, the amount

to be set by subtracting all the expenses of the

preceding income years which the person is

allowed to deduct pursuant to Sub-section (1) of

Section 2 of this Schedule 2 from the depreciation

base amount remaining at the end of preceding

income year.


Nepal - Income Tax Act, 2058 Eng_20130107021810.doc

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